You have probably heard stories about people who got their credit cards ruined because they placed it in close proximity to a magnet. Sure enough, your credit card does contain a magnetic strip, and the common advice is always to avoid placing magnets together lest they affect each other and ultimately ruin their magnetic capabilities. That is called demagnetization.
But the fact is, most people never have experienced such a situation themselves. Magnetic strips are used everywhere, from credit cards to train passes to card keys. But the failing of these cards from demagnetization is rarely observed, if any at all.
In fact, the magnetic strips built in these cards are usually made from 'hard' magnets like ferrous oxides and are protected by a tough plastic film against physical abrasion. Card makers know that credit cards go through a great amount of wear and tear, and it is in their best interests to make them as durable as possible. Damaged credit card exchanges cost them millions of dollars every year.
Most of the time, credit cards fail to register on the swipe machine because of dirt on its surface (or get rejected because the user exceeded his credit limit) rather than due to magnetic failure. That is the reason why most cards work again after you wipe them with your shirt or hand.
However, demagnetization does still occur in some situations. The magnetic strip is a very durable magnet in itself, but there are other even stronger magnets around that may demagnetize them. And these magnets are actually found almost every day in our daily on-goings.
Refrigerator Magnets
Magnets used in, (not on, those small decorative magnets are harmless) refrigerator doors for keeping your fridge closed and tight are actually very big and strong magnets. You may not realise it, but it does take a strong and very durable magnet to handle that frequent opening and closing and yet still hold the heavy door. Without the magnet, your food would probably have all gone bad. Naturally, the one thing you shouldn't do is to swipe your credit card against your fridge door magnet. You wouldn't of course, but sometimes it does occur that you would bring your credit card very close to the fridge door without realising. There have been cases where people threw their cards into their shopping bags after a round of grocery purchase and left them together in the fridge.
Magnetic Resonance Imaging or MRI
This is one instance you have to be careful if you're ever in the hospital. The MRI used for scanning the inside of your body using magnetic fields, and as you might have guessed, if it's strong enough to penetrate your body, wallets and protective card holders aren't going to be much help. I wouldn't expect you to be carrying one to go for a MRI scan, but you might end up in the room for other reasons (you work there or you're accompanying someone). If you forget, you could end up having not only your credit card, but possibly all other cards wiped out too.
Wallet magnets
Some wallets or purses have a small magnet in them for latching of compartment covers. They are usually not very strong, and unlikely to cause demagnetization. However, I haven't done any real experiments to say it won't, so the best advice is still not to slot your credit card directly where the magnet is located. Over time, and at such close proximity, who is to say it won't?
Physical demagnetization
While most people understand that other magnets can potential demagnetize your credit card, they don't know that magnets can in fact be demagnetized by physical conditions such as heat, cold, mechanical harm or even wetness.
Magnets are the result of the alignment of many small domains that produce a uniform field strong enough to be observable. Magnet strips make use of this and align the domains in a way to record data that can be interpreted by the swipe machine. Heat and cold can disrupt these alignment patterns, causing data corruption.
What can be done if demagnetization does actually occur?
So what happens if you're really one of those rare cases with a credit card gone bad? Well, unfortunately for you, chances are you will only find out when you next make a payment with the card. So you're most likely in an embarrassing situation where the cashier rejects your card and others in the queue half guess that you've exceeded your credit limit.
Luckily, a swipe reader isn't a must for using the credit card. The magnetic strip on your card actually contains the 16 or 21 digits card number as well as its expiration date. Swiping the card simply inputs these into the system, and the system then checks your credit before prompting for transaction. So you can simply ask the cashier to key in those digits manually into his/her reader. Alternatively, the cashier can always call their partner which processes their card transactions and read the same information to them for processing.
The easiest way is of course to use a different card if you have any, but even if you don't, just have the cashier go the extra way to get it processed. Businesses will not say no to your money (unless you don't have any), so don't worry about troubling them to get the card processed; they will be glad to do it for you.