Credit is a convenience; it allows you to charge a meal, pay for an appliance with an installment plan or take out a loan to buy a house. With credit you can make a purchase when you lack ready cash, and you can enjoy the purchase while you are paying for it.
When dining out at a fancy restaurant or staying in a hotel, however, it’s important to take notice of what the banking industry calls an “authorization hold.”
Recently, a consumer complained that a restaurant had put through a charge equal to his bill plus 20 percent, even though he had left the server’s tip in cash. On investigation, he discovered that this is a common practice by many businesses.
Here’s how it works: Your restaurant bill comes to $100 and you give the server your credit card. When they run it through, they put an authorization hold on your account for $120, assuming you’re going to add a nice tip to the bill. But you leave the tip in cash on the table instead. Still, your bank or credit card company “holds” that $120 for a couple of days until the actual amount of your charge is processed – and that means you don’t have access to that $20. If you are close to your credit limit, it could mean a purchase is declined. If you used a debit card, it could mean a bounced check and overdrafts fees.
Now, imagine it’s a hotel stay. You’ve checked in and given a credit card at the front desk. They put an authorization hold on your card for what they think your total bill will be (room charge, taxes, incidentals). If you are staying for several nights, this could amount to a lot of money that you no longer have access to.
Credit-card processors often discourage vendors from doing these kinds of holds, but they are perfectly legitimate so long as the vendor notifies customers of the practice. The BBB advises consumers to keep tabs on their credit and bank accounts online, especially when traveling, and read the fine print on hotel agreements. When dining, pay for your check and tip together with either credit or cash, but not both.