Simpler Smarter Savings


Authorization for a credit card transaction ensures that the funds are available to cover the transaction. During credit card processing, transaction data is transmitted to the card holder’s credit card company. The data includes essential information such as the account number and the transaction amount as well as merchant account data.

Processing an authorization is typically an automatic procedure. The terminal sends the card information to the customer’s card issuer. The account is verified and checked to insure that the funds are available. If so, the transaction comes back as approved. The money will end up in the merchant account. If the transaction is declined, the card holder must either present another form of payment or leave without the merchandise.

The term “authorization” is sometimes confused with “authentication,” but these are two different things. Authorization involves checking the funds in the account, making sure there is enough money or credit to cover the transaction, and then deducting that amount from the account. Authentication involves verifying the identity of the person using the card.

It’s important to note that certain types of credit card processing events can cause an authorization failure even if the card holder has the funds to cover the purchase. This occurs when the card holder completes a transaction involving a hold on funds beyond the actual amount of the purchase.

Merchants typically authorize more funds than needed for the amount of the transaction for certain gasoline purchases and when the card holder checks into a hotel or motel. They do this to insure that they will get paid for the full amount of the card holder’s purchases. Gas stations in particular pre-authorize a flat amount, such as $50 or $75, when a credit or debit card is scanned at the pump. This hold remains on the account up to three days. Hotels and motels often do the same thing, to cover any additional costs the customer may incur, such as pay-per-view movies, room service or phone calls.

These holds freeze that amount in the card holder’s account until the hold is released. To avoid such holds, always go inside and pay at gas stations and ask at about pre-authorization amounts when checking into a hotel or motel. Eventually the authorization is corrected to the actual transaction amount and the merchant account is credit for the actual sale amount as part of the finalization of the credit card processing.