When you whip out your credit card to pay for something, money might vanish from your credit line right away – but that doesn’t mean the merchant has instant access to it. All the swipe does is verify that the account is legitimate and the funds are there by placing an outstanding authorization that reserves the money for the seller. The funds don't officially get transferred to the merchant or added to your balance until the transaction is settled.
Proof of Credit
A credit card authorization, like its name suggests, gives the seller permission to charge your card by confirming that you have a sufficient credit line to cover the purchase. An outstanding authorization refers to a transaction that has been initiated by the merchant, but not fully processed. This reduces your line of credit by the amount of the authorization, but your card isn’t actually charged, nor is your balance affected, until the merchant submits the transaction record to the issuer, often at the end of the day with all her other credit card transactions. Once your credit card issuer receives and processes that record, the transaction goes on your balance -- a process that can take a few days to complete. If the record isn't presented for payment within a specified amount of time, the hold drops from your account, and the funds are available again.
When the Hold's the Same
In many cases, the impact of outstanding authorizations is negligible. Most merchants are limited to placing an authorization hold for the amount of goods and services purchased. If you’re charging a pair of jeans at the mall, the authorization placed on your account equals the cost of the clothing. Apart from the transaction moving from one column to another on your online statement, you shouldn’t notice a difference between when the transaction is authorized and finalized.
A vendor may seek a different authorization on your card when the final transaction amount isn’t clear. For example, a gas station owner doesn’t know how much gas you’re going to buy when you swipe your card at the pump, so most place a standard hold on each such transaction – anywhere from $1 to $100. You might see an outstanding authorization for $75 from the gas station, even though you only bought $55 worth of gas. When the transaction gets processed, the amount will change to the correct amount. Restaurants also may include an extra hold to account for the projected tip when the cashier authorizes your transaction, which may be above or below what you actually leave.
Protecting Their Interests
Other vendors may place a greater hold on your card to ensure they're protected against unexpected charges. Hotels, for example, agree on a standard room rate when you check in, but don’t know how many amenities you’ll use, such as room service, or when you'll be back in town to pay any uncollected portions of your bill. As a result, many tack on an additional amount onto their authorization in case you raid the minibar or stay an extra day. Rental car companies sometimes do the same thing, in case you decide to keep the car an extra week on the spur of the moment. Unlike dealing with a merchant, in which the transaction is settled within a few days of the purchase, holds from a hotel company or car rental facility may remain until you check out or return the car.
When Mistakes Happen
Vendors aren’t supposed to authorize a hold for anything other than the amount charged in a transaction in most cases. However, if a vendor accidentally keys in the wrong amount and voids the transaction, the outstanding authorization remains on your card until it falls off, which can take a few days. If you need the hold taken off sooner – say, if you’re traveling and find that a voided transaction you made at the store leaves you without enough remaining on your balance to hold a hotel room – call the credit card company. You may be able to get the company to remove the outstanding authorization, particularly if the merchant is willing to join you on the call to confirm the void.
- Jack Hollingsworth/Digital Vision/Getty Images