An authorization hold is a type of temporary charge placed on a credit or debit card account. The funds are not actually transferred from the account until a later date, but the authorization hold ensures that the funds will be available when they are needed.
Authorization holds are commonly used to verify that a credit or debit card has sufficient funds available to cover a transaction. For example, if you are renting a car, the rental company may place an authorization hold on your credit card account in order to ensure that you have enough money to pay for the rental.
How Does an Authorization Hold Work?
When a business places an authorization hold on your account, they are essentially asking your credit card issuer for a temporary loan of the amount of the hold. The funds are not actually transferred from your account until the transaction is processed (which may be days or weeks later).
If you have sufficient funds in your account to cover the transaction, the authorization hold will be temporary and will eventually drop off your account. If you do not have sufficient funds in your account, the authorization hold may result in an overdraft fee.
Why Do Businesses Place Authorization Holds?
There are a few reasons why businesses might place an authorization hold on a credit or debit card account.
The most common reason is to verify that the card has sufficient funds available to cover the transaction. This is especially common with car rentals, hotel reservations, and other purchases where the final cost of the transaction is not known in advance.
Another reason businesses might place an authorization hold is to prevent fraud. For example, if you are buying something online, the merchant may place an authorization hold on your card to verify that it is a valid account. This helps to prevent someone from using a stolen credit card to make a purchase.
Finally, some businesses use authorization holds as a way to “capture” funds for future billing. For example, if you are signing up for a subscription service, the company may place an authorization hold on your card for the first month’s charges. This ensures that they will have the funds available when they need to bill you.
What Is an Authorized User?
An authorized user is someone who has been given permission by the primary cardholder to use a credit or debit card. Authorized users are typically family members or close friends of the primary cardholder.
The primary cardholder is responsible for all charges made by authorized users. This means that if an authorized user racks up a large bill, the primary cardholder will be responsible for paying it off.
How Do Authorization Holds Affect My Credit Score?
Authorization holds do not have any direct impact on your credit score. However, if an authorization hold results in an overdraft fee, that fee could have a negative impact on your score.
Can I Avoid Authorization Holds?
There is no surefire way to avoid authorization holds, but there are a few things you can do to minimize your chances of having one placed on your account.
If you are making a purchase where an authorization hold is likely, try to use a credit card instead of a debit card. Credit cards have more protections against unauthorized charges than debit cards do.
You can also ask the merchant if they offer “pre-authorization”. This is a process where the merchant verifies that your card has sufficient funds available before they place the authorization hold. This can help to avoid overdraft fees if you do not have enough money in your account to cover the transaction.
Finally, you can try to use a different form of payment altogether. For example, if you are renting a car, you might be able to use your personal auto insurance instead of purchasing the rental company’s insurance. This can help to avoid an authorization hold entirely.
What Should I Do If I Have an Authorization Hold on My Account?
If you have an authorization hold on your account, there is not much you can do about it. You will just have to wait for the hold to be released (which could take a few days).
However, if you are worried about overdrawing your account, you can always contact the merchant and ask them to remove the authorization hold. They are not required to do this, but many companies will be happy to comply if you explain your situation.
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