How Does a Hold on a Credit Card Work?

Woman sitting on a sofa with a credit card in her hand
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When a person speaks of a "credit card hold," they can be referring to two different meanings. The hold might be a verified electronic transaction hold, also called an "authorized hold." It indicates that an amount is rendered as unavailable by your bank until the hold settles or falls off. In the second meaning, it might be a temporary period where you are prevented by your bank from using the card until the issue in question is resolved. This type of hold is also known as an "administrative hold."

Credit card holds make at least a part of your credit impossible to use. Consumers need to understand both types of credit card holds in order to be able to manage them.

The Administrative Hold

There are two types of administrative holds:

  • Over-the-credit-limit hold
  • Late-payment hold

The administrative hold that can be placed on a credit card by the issuing company is the simplest type of hold.

If you go over your credit limit, a hold may be placed on the card to prevent you from using it. This administrative hold will remain in effect until you pay your card down below the credit limit, if that is the issue.

Another instance where you may encounter an administrative hold is if you have a late payment on your credit card. If you have a good credit history, the credit card company may report you to one of the credit reporting agencies for only one late payment but allow you to continue to use the card. If you keep making late payments, it may cut off your use of the card through an administrative hold.

If late payments are the issue, you must show the credit card company several months of on-time payments before you can use the card again. The company may even cancel your card.

In order to avoid administrative holds on your credit card, one strategy is to set up an alert with your card company so it will let you know if you are about to go over your credit limit. To avoid late payments, you can have your payment automatically deducted from your checking account on or before the due date, and sent to the card company through electronic funds transfer. Now, most credit cards enable one- to three-day alerts about payment due dates. You may receive these notifications via email or text.

Authorization Credit Card Holds

Authorization holds, also called "pre-authorizations," are more complicated. They are a banking industry practice of verifying electronic transactions. The credit card processor of the merchant from which you are buying a product or service makes a portion of the balance of your checking account unavailable until your transaction is settled. The merchant's processor places this authorization hold on your funds to protect itself from risk. Think of an authorization hold as being like a security deposit.

Industries that typically use authorization holds are hotels, car rental companies, and gas stations.

How Authorization Holds Work

Here are the steps involved in an authorization hold:

  • You call a hotel for a reservation, and it takes your credit card information (number, expiration date, and security code).
  • The bank that issued your credit card puts a hold on a predetermined amount of your funds in your account, which reduces your credit limit.
  • The predetermined amount of your funds may be more than the cost of the stay. It is set by the hotel.
  • That authorization hold stays on your account until you check out of your hotel, even if a long time passes between your reservation and your stay at the hotel.
  • Once you check out of the hotel, your charge is submitted for settling. The temporary authorization hold is taken off your credit card.
  • The funds are transferred from the credit card-issuing bank to the merchant.
  • There are times when the hotel might create two authorization holds. A second might be for incidentals like restaurant or mini-bar use or room service.

Authorization holds operate much the same for both car rental companies and gas stations. Car rental companies may hold more funds than are involved in a transaction in order to cover potential damage to the car. Gas stations may hold more because they may have a pre-determined amount they hold for every transaction.

Authorization holds are a mystery to most consumers. When we buy gas, reserve a hotel room, or reserve a car, we might not think about holds that will be placed on a part of the balance of our account. If we do think about it, we don’t know how much the hold will be, or we presume it disappears as soon as we pay the bill. We don’t know how to avoid or reduce these authorization holds. In order to be informed consumers, this is the type of information we need to have.

Tips for Navigating Credit Card Authorization Holds:

  • If you are making a hotel reservation or renting a car, ask about the credit card hold policy when you make the reservation, including the amount of the hold.
  • Before you leave your home, check the credit limit on your card and your available balance. Make sure you have enough room on your credit card to pay for the hotel or car with the same card with which you made the reservation.
  • Carry two cards with you in case one gets declined.
  • Ask the hotel or car rental agency to remove the hold immediately when you pay your final bill. If they won’t, ask them to specify exactly how many days it will take for removal.

The Bottom Line

Authorization holds protect merchants against travelers who are out to cheat them. You may have to use a credit card in order to make advance reservations for a hotel or a rental car. If you know how to navigate holds, your travel experience will be more pleasurable.

Frequently Asked Questions (FAQs)

How long does a hold on a credit card last?

The length of time a merchant can place a hold on your card depends on the type of merchant. Some merchants, like hotels or rental companies, may be able to place a hold for as long as a month if the transaction hasn't yet been finalized.

Is a credit card hold a charge?

No, a credit card hold is not an actual charge. It's simply an initial pending amount the merchant places on your card to verify that you have the funds to cover the transaction. This amount may be larger than your final amount because the merchant wants to cover any potential losses (for instance, if you wreck a rental car). The real charge will go through after you complete the transaction.