A two-frequency data signal, also known as a biphase or F/2F signal, is accurately decoded by sampling the signal and digitizing the samples to provide a series of digital values representing the signal. An intelligent digital filter manipulates the digital values to decode the signal, by detecting the peaks in the sampled signal and decoding the signal by analyzing the location and amplitudes of the peaks. Only peaks which are outside a guard band may be detected. If the signal cannot be properly decoded with a wide guard band, the guard band may be repeatedly narrowed, until a minimum guard band is reached. Bits are identified by comparing the displacements between peaks to a bit cell width. An even number of displacements indicates a `0` bit, and an odd number of displacements indicates a `1` bit. After decoding, the bits are converted into bytes. Parity and longitudinal redundancy code checks are used to correct bad bits. During decoding, many indications of a degraded signal may be obtained. If a degraded signal is indicated, the host computer is notified, even though the signal was properly read. Card replacement can then be initiated at the first signs of signal degradation, before the data signal becomes unreadable.