Preauthorization is a way for credit card companies to validate your card.
When you pay $50 for gas and charge it to your credit card, you expect to see a $50 charge in your account. However, depending where you pay you may instead see one or more unfamiliar charges, including a charge for only $1. Before going into a panic, or thinking you just got $49 of free gas, understand that this charge is intentional and not the result of a billing error.
The $1 charge on your card only happens when instead of paying inside the gas station you choose to pay at the pump. Gas station cards such as Shell and Chevron, as well as cards carrying the Visa and MasterCard logo all require retailers to institute the $1-hold process and most also include debit cards. The charge is a preauthorization that provides a way for your credit card company to verify the card is valid before allowing you to use it when the amount of the full charge is not yet certain.
A $1 charge is often not the only difference you see when paying at the pump. After your credit card company verifies the card via preauthorization, a common next step is a hold, or block on your card. Credit card companies place a limit on the dollar amount of gas you can pay for at the pump and instruct retailers to place a hold on your card for this amount to ensure you do not exceed the limit. For example, if you pump $25 in gas you may see a hold on your card for $50 to $75. This amount remains in place until the credit card company receives and processes the exact amount of the charge.
During the preauthorization stage, if you are already over the limit on your card, or if you previously reported the card lost or stolen the credit card company will decline the purchase. During the hold stage, if you nearing your credit limit and do not enough available credit to provide for the hold amount the credit card company will decline the purchase. For example, if you want to pump $20 of gas, have $50 in available credit and your credit card company charges a $75 hold, your credit card company will decline the purchase. Both preauthorization and hold amounts remain in place until your credit card company receives and processes the purchase.
The only way you can avoid a purchase decline the preauthorization or hold stage is to authorize over-the-limit transactions on your credit card. As of Feb. 22, 2010, provisions of the federal credit card act state that unless you specifically opt in to authorizing transactions that exceed your credit limit, your credit card company cannot approve these transactions. If they do, the company cannot charge you an over the limit fee.