Credit card temporary hold or authorization is a commonly-appearing item on most credit card statements. Sometimes, you will see a temporary authorization for items you may have checked out but not purchased. Customers often panic when they see a temporary hold, authorization, or pre-auth on their credit card statement, especially credit card users who review their online transaction histories on a daily basis.
So, what is a credit card temporary hold (or temporary authorization, pre-auth)?
We will clarify the term with the help of an illustration:
Let’s say you visit an online merchant who sells Widget X for $20. You like the widget, add it to your shopping cart and go through with the order. The moment you enter your credit card information on the merchant’s website, the payment processor used by the business will place a temporary hold on your credit card account in an amount equivalent to the purchase price of the item.
In this case, a temporary authorization in the amount of $20 will be placed on your credit card account immediately.
At this stage, one of two things may happen:
The merchant may have setup the payment processing to “Sale”
If the merchant has setup his/her payment processing system to use a “Sale” parameter, your credit card will be charged in that amount immediately and your account statement will immediately show a purchase of $20. Despite the temp charge (pre-auth), a temporary hold will still be placed on your account until the merchant “Settles” the transaction with the processor — in other words, the merchant instructs the payment processing company to go ahead with the transaction. Once cleared, the temporary hold will be converted into a final charge that you will have to pay at the end of the month.
It is also possible that the merchant may have setup the payment processing system to “Authorize Only”
Every system would use different jargons (instead of “Sale” and “Authorization”) but the concepts are mostly similar, and the process somewhat uniform.
Some merchants prefer to review orders manually before they process and fulfill them. In this case, the merchant may just put a “credit card temporary hold” on your account until the order has been reviewed manually by an authorized representative at the company. Once satisfied, the merchant would instruct the payment processor to go through with the transaction. The process is called “Settlement”. At this stage, your credit card will be charged the amount of $20 (the purchase price mentioned in the preceding illustration).
If the merchant is not satisfied, however, the transaction will remain as an Authorization on your credit card statement. Sometimes, it could be in an undecided state for several weeks.
How long does the transaction remain as a temporary authorization? When will the hold be removed?
If you decide to go through with the transaction, the temporary authorization on your credit card will remain until the payment settlement process is completed. While the duration ranges, an average could range from a few days to several weeks.
If you decide to cancel the order, however, before it is processed and settled, your seller may just “Void” the order (that is it won’t be submitted to the payment processing system) and the transaction will continue showing up on your credit card statement as a hold or temporary authorization.
It may remain in that status either until the next billing statement or a shorter duration depending on how your credit card company’s internal policies are defined. If the order has truly been cancelled you won’t be charged.
Why is my total credit line reduced by an amount equivalent to the temporary hold?
When a temporary authorization is placed on your credit card, essentially, the bank is setting aside the funds in that amount should the transaction follow through. To ensure the merchant is paid before you use your credit card for another process and exhaust your available credit limit, the credit card company will reduce your total available credit limit by an amount equivalent to the temporary authorization on your credit card.
You can liken the process to setting aside funds in a real world transaction.
Do I need to do something to remove the hold from my account?
Generally, there is not much you can do. The hold would be automatically lifted if the merchant doesn’t follow through on the transaction. Even if the hold is lifted, if you did purchase the goods or services from the business, it is possible for the company to follow through and convert the hold into an actual charge even after a few weeks. It occurs rarely, though, as the business would have to pay higher transaction costs to process a transaction that is relatively old.
What if I decide to dispute the transaction?
If the business has cheated you on the transaction or has engaged in otherwise unconscionable behavior, you could actually dispute the transaction and file for a chargeback. You can read our article about disputing a credit card transaction and filing for a chargeback.
Can I file for the chargeback while my credit card is on temporary hold?
Generally, no, because at the stage of a temporary credit card authorization, the transaction is not yet completed and fulfilled so you will have to wait until the process has been completed. Technically, as long as the amount is on hold, the merchant does not have your money so you cannot really take it back.
Can the credit card temporary hold (or authorization) be higher than the purchase amount?
The amount of the hold could be higher (or even lower). Some systems will place a hold in a nominal amount of $1, whereas other systems could set aside a much higher amount. Some gas stations, for instance, will place a temporary authorization in an amount as high as $90 even before you fill the tank. As soon as you complete the transaction, however, the station will charge the actual amount of your purchase price. These are safeguards merchants use to protect their interests.
By Nimish Thakkar (c). Nimish is the founder of DontSpendMore.com. He holds two graduate degrees, including an MBA in Finance.
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