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The check-out clerk has totaled up your groceries, so you insert or swipe your credit card in the terminal to pay for your items. Within seconds, the terminal screen shows "Transaction Approved," and you are on your way.

The credit card authorization process is a routine part of everyday life for most of us, but what happened in those few seconds is actually the result of a complex virtual process between your bank and the merchant. This article will offer an overview of credit card authorization and answer some of the common questions people have about the process.

What is a Credit Card Authorization?

Credit card authorization, which usually is issued through a credit card processor, is the approval that a customer has enough funds in their account to cover a purchase. If the transition is approved, the purchase amount is held and then subtracted from the customer's credit limit. This is different from the ACH Authorization which is a recurring payment through bank account information.

How Does a Credit Card Authorization Work?

A request for credit card authorization first goes through the merchant's acquiring bank to determine the cardholder's bank. Then the cardholder's bank determines whether the transaction will be approved or declined based on the card holder's line of credit.

An approval or rejection of the charge then travels back through the acquiring bank to the merchant. If the transaction is approved, that amount is deducted from the cardholder's account.

6 Steps of Credit Card Authorizations

Although it seems like a simple process, credit card authorizations go through the following six distinct steps:

  1. The customer wipes or inserts their credit card into the merchant account provider's system via a terminal.

  2. The merchant account provider sends the transaction details to its payment processor.

  3. The payment processor then sends the transaction information to the credit card association's network.

  4. The acquiring bank checks with the issuing bank via the card association's network to determine whether enough funds are available in the customer's account.

  5. The acquiring bank communicates approval or rejection information back to the merchant account provider through the payment processor.

  6. The merchant receives a code that signifies approval or rejection of the purchase. A decline code means the transaction fails. An approval code means the card association network will transfer funds from the card holder's issuing bank to the merchant's bank account.

Uses of a Credit Card Authorization Form

A credit card authorization form is a legal document that a cardholder signs to grant permission to a merchant to charge their debit or credit card. The form can be used for a single transaction or recurring charges on the card. Here are the most common uses of a credit card authorization form:

  • Recurring Payments. A credit card authorization form means that a business does not have to contact a customer each time a bill is due for ongoing subscriptions, memberships, and utilities.
  • Card-Not-Present Transactions. A credit card authorization form is helpful in preventing fraud when the cardholder is making an online purchase or another transaction when the physical card is not available.
  • B2B Payments. Credit card authorization forms are useful for various B2B purchases such as business supply purchases (any team member can place an order or pick up an order) or payment of business insurance or utilities.
  • Chargebacks. A credit card authorization form validates the legitimacy of a charge, thereby reducing costly chargebacks.

Can a Credit Card Authorization Fail?

Authorizations can fail for technical or financial reasons. A failed approval is communicated with an error code, and the transaction will not be completed.

If the error code is due to a technical problem, the merchant usually tries submitting the information again or attempts to fix the issue. For example, the traction submission may have had a missing value or otherwise have been submitted incorrectly. Error codes that indicate a financial problem usually are due to a problem with the cardholder's account.

Most of the time, credit card authorizations go smoothly and take only just a few moments. If you would like the added fraud security and convenience of a credit card authorization form, you can download a free template.


Get Your Credir Card Authorization Now

FAQS about Credit Card Authorization

Here are the answers to some of the most frequently asked questions about credit card authorization.

  • Is money transferred during credit card authorization?

    After a credit card purchase is authorized, the money transaction is handled by the process called "capturing." "Capturing" places a hold on the funds in your account. Then, the transaction amount is deducted from your credit limit.

  • What Is a Credit Card Authorization Key?

    A credit card authorization key is a code used to complete a transaction and help prevent fraud. The code is transmitted automatically in encrypted form between the merchant's point of sale system and the cardholder's issuing bank. It is not visible to customers or merchants.

  • What Is a Credit Card Authorization Hold?

    A credit card authorization hold temporarily freezes either a certain amount in an account or the entire account of a cardholder. There are two types of authorization holds that can come into play with credit cards. One is a pre-authorization hold, and the other is an administrative hold.

    Pre-authorization hold. With a pre-authorization hold, the money for a purchase or service is still in the account; however, the hold restricts its use. These holds can act as a sort of security deposit. For example, hotels use them to cover potential damage or mini-bar charges. The length of authorization holds can vary, but they usually must be settled within five to seven days.

    Administrative hold. In an administrative hold, the bank that issued your credit card places a temporary freeze on your account until an issue is resolved. The problems might include missing payments or suspected fraudulent activity.

The check-out clerk has totaled up your groceries, so you insert or swipe your credit card in the terminal to pay for your items. Within seconds, the terminal screen shows "Transaction Approved," and you are on your way.

The credit card authorization process is a routine part of everyday life for most of us, but what happened in those few seconds is actually the result of a complex virtual process between your bank and the merchant. This article will offer an overview of credit card authorization and answer some of the common questions people have about the process.

What is a Credit Card Authorization?

Credit card authorization, which usually is issued through a credit card processor, is the approval that a customer has enough funds in their account to cover a purchase. If the transition is approved, the purchase amount is held and then subtracted from the customer's credit limit. This is different from the ACH Authorization which is a recurring payment through bank account information.

How Does a Credit Card Authorization Work?

A request for credit card authorization first goes through the merchant's acquiring bank to determine the cardholder's bank. Then the cardholder's bank determines whether the transaction will be approved or declined based on the card holder's line of credit.

An approval or rejection of the charge then travels back through the acquiring bank to the merchant. If the transaction is approved, that amount is deducted from the cardholder's account.

6 Steps of Credit Card Authorizations

Although it seems like a simple process, credit card authorizations go through the following six distinct steps:

  1. The customer wipes or inserts their credit card into the merchant account provider's system via a terminal.

  2. The merchant account provider sends the transaction details to its payment processor.

  3. The payment processor then sends the transaction information to the credit card association's network.

  4. The acquiring bank checks with the issuing bank via the card association's network to determine whether enough funds are available in the customer's account.

  5. The acquiring bank communicates approval or rejection information back to the merchant account provider through the payment processor.

  6. The merchant receives a code that signifies approval or rejection of the purchase. A decline code means the transaction fails. An approval code means the card association network will transfer funds from the card holder's issuing bank to the merchant's bank account.

Uses of a Credit Card Authorization Form

A credit card authorization form is a legal document that a cardholder signs to grant permission to a merchant to charge their debit or credit card. The form can be used for a single transaction or recurring charges on the card. Here are the most common uses of a credit card authorization form:

  • Recurring Payments. A credit card authorization form means that a business does not have to contact a customer each time a bill is due for ongoing subscriptions, memberships, and utilities.
  • Card-Not-Present Transactions. A credit card authorization form is helpful in preventing fraud when the cardholder is making an online purchase or another transaction when the physical card is not available.
  • B2B Payments. Credit card authorization forms are useful for various B2B purchases such as business supply purchases (any team member can place an order or pick up an order) or payment of business insurance or utilities.
  • Chargebacks. A credit card authorization form validates the legitimacy of a charge, thereby reducing costly chargebacks.

Can a Credit Card Authorization Fail?

Authorizations can fail for technical or financial reasons. A failed approval is communicated with an error code, and the transaction will not be completed.

If the error code is due to a technical problem, the merchant usually tries submitting the information again or attempts to fix the issue. For example, the traction submission may have had a missing value or otherwise have been submitted incorrectly. Error codes that indicate a financial problem usually are due to a problem with the cardholder's account.

Most of the time, credit card authorizations go smoothly and take only just a few moments. If you would like the added fraud security and convenience of a credit card authorization form, you can download a free template.


Get Your Credir Card Authorization Now

FAQS about Credit Card Authorization

Here are the answers to some of the most frequently asked questions about credit card authorization.

  • Is money transferred during credit card authorization?

    After a credit card purchase is authorized, the money transaction is handled by the process called "capturing." "Capturing" places a hold on the funds in your account. Then, the transaction amount is deducted from your credit limit.

  • What Is a Credit Card Authorization Key?

    A credit card authorization key is a code used to complete a transaction and help prevent fraud. The code is transmitted automatically in encrypted form between the merchant's point of sale system and the cardholder's issuing bank. It is not visible to customers or merchants.

  • What Is a Credit Card Authorization Hold?

    A credit card authorization hold temporarily freezes either a certain amount in an account or the entire account of a cardholder. There are two types of authorization holds that can come into play with credit cards. One is a pre-authorization hold, and the other is an administrative hold.

    Pre-authorization hold. With a pre-authorization hold, the money for a purchase or service is still in the account; however, the hold restricts its use. These holds can act as a sort of security deposit. For example, hotels use them to cover potential damage or mini-bar charges. The length of authorization holds can vary, but they usually must be settled within five to seven days.

    Administrative hold. In an administrative hold, the bank that issued your credit card places a temporary freeze on your account until an issue is resolved. The problems might include missing payments or suspected fraudulent activity.