When a card holder purchases an item and uses the “credit” option, the merchant obtains an authorization code for the amount of the transaction. The approved authorization code lets the merchant know that the consumer has enough funds on his or her card to pay for the transaction. A merchant has the right to refuse a sale or ask for a secondary form of payment if he or she cannot obtain an authorization on the credit card. The credit card company immediately puts a hold on the funds in the credit card account until the merchant takes the money or settles the charge. The merchant has a certain amount of time to settle the charge before the credit card company releases the hold on the funds. Most credit card authorizations last up to three business days, although some keep the hold on the funds for up to five business days.
The entire process of settling a credit card transaction may take several days to complete, even though the card has a hold on the funds for the transaction. Merchants usually submit their credit card payments in batches at the end of the night. A consumer may not see a completed transaction on the credit card statement until days after the transaction initiation.
If an authorization expires for any reason, the consumer will have to try to process the payment again with the merchant. The merchant will then need to obtain a new authorization code. The new authorization code will have a new expiration date of three to five business days before the hold releases.
Some companies obtain an authorization and place a temporary hold on funds until a consumer returns something. An example of such an authorization is an authorization that a company may place on a credit card for a rental card. The authorization is meant as security while the consumer has the car. If the person has an accident while driving the car, the rental company may want to charge some money to the card for the incident. A gas station may place a temporary hold on a credit card, as well. The hold may only be for one dollar until the merchant processes the transaction. Not many establishments process sales in that manner because it can confuse consumers as to how much money they have in their accounts. Most places a hold on the entire transaction amount.