Don’t Let Authorization Holds “Hold” You Up
Written by Alice Holbrook, NerdWallet
Declined. Those seven letters are enough to make any shopper using plastic break out in a cold sweat. A rejected transaction often indicates insufficient funds, but it also can be the result of an authorization hold. An authorization hold – also known as a block or preauthorization – occurs when a credit or debit issuer approves a purchase, then makes the purchase amount unavailable until the transaction clears. The amount can remain in financial limbo for several days, or even up to a month. So what’s the problem, if you’ve already spent the money? Read on to see how authorization holds can complicate your life, and what you can do about it.
In most cases – when you’re buying groceries or some DVDs off of Amazon – the amount withheld matches the amount of your purchase. However, some businesses, like hotels and car rental companies, as well as many restaurants and gas stations – commonly withhold more money to cover tips or incidentals, just in case. Once the transaction clears, it will reflect the actual amount of your purchase, but until then, the extra money is unusable – even if you didn’t really use it.
If you swipe your debit or credit card at a restaurant, the amount of the hold is typically small, 20% of the bill at most. But if you swipe your card at a hotel, the amount may be much larger, and will likely be unavailable as long as you’re traveling. If you’re close to your credit limit, this could cause your card to be declined. If you use a debit card, it could mean overdraft fees or a rejected check.
How can you mitigate holds?
There’s no way to prevent every hold if you use a credit or debit card, but if you’re prepared for them, you can make sure they don’t ruin your trip (or the week until your next paycheck).
- Ask about holds: Before you make a hotel or rental car reservation, ask the company about its electronic-transactions practices. Find out if they allow holds and how much they hold. Similarly, if you’re looking for a financial institution or credit card company, you can factor their pre-authorization policies into your decision.
- Pay with the same card: Use the same card to both reserve and pay for a hotel room or rental car. Doing so could cause the earlier blocks to fall off, limiting the number of blocks on your accounts. If you use a different payment method to wrap up a transaction, ask the business to promptly remove the block.
- Bring multiple cards: Avoid carrying only one credit or debit card when you travel. This is an important safety measure in case your card is stolen, but can also come in handy in case of a large, unexpected hold.
- Be a good steward: Perhaps the most important way to avoid being sidelined by an authorization hold is to keep an eye on your credit limit or checking account. Knowing where you stand can help you budget for a potential hold and plan your purchases accordingly.
The bottom line
Though inconvenient, authorization holds are a common practice. Fortunately, if you keep a close eye on your account and credit limit, and pay your credit card bills regularly, you can prevent most problems. You might also consider exclusively using credit cards – rather than debit – for larger purchases, like hotel and rental car reservations, since your credit limit is likely much higher than the amount of cash in your checking account. This should free your debit card up for smaller, day-to-day purchases, and free you from frustration and embarrassment in the checkout line.Tags: credit card, credit union, debit card, financial planning, holds, iaa credit union, iaacu, Nerdwallet, travel