How do hotels and car rentals block your credit card limit in advance.
The most common examples of credit and debit card blocking happen when you either check in at the hotel or rent a car. When you use a credit or debit card to check into a hotel or rent an automobile the person at the counter usually contacts the credit card company to which your credit card belongs and blocks a certain amount on it. In other words, a hold is placed on a certain amount of money. The amount of money that is blocked depends upon the kind of expenditure that you intend to make. For example, when you check into a hotel, the amount of money that is blocked or held on your credit card will depend upon your intended duration of stay. Similarly, for a car rental, the actual rent plus anticipated charges such as incidentals like food, gasoline can add to the blocked amount.
You should understand here that about amount is not exactly charged to your credit card. It is simply withheld from your overall credit limit. This means that if you have a credit card with a credit limit of $3000 and $1000 are blocked when you check into a hotel, your active credit limit from then on will only be $2000. For this reason, blocking a credit card can often surprise people when their credit cards are denied due to insufficient funds in the next transaction. People do not understand that their credit card limit or the balance in their bank account has been blocked for a certain amount previously.
When you finally pay the bill with the same credit card for your hotel bill or for the car rental, the final charge on your credit card or your debit card will replace the block in a day or two. However, if you pay the bill using a different credit card or using another method such as cash or travelers checks, your credit card company may take much longer to remove the block. It is not uncommon for funds to be blocked for up to 15 days after you have made the final payment. This happens because the credit card company does not get notified of the final payment and is not aware that you have paid the final build using other means.
Why credit and debit card blocking can be a problem
A block is put on the credit card in order to ensure that you have enough credits to match remaining on your card to meet the final bill. It is a way that the merchant uses to ensure that you will be able to meet the final expense by estimating the expense beforehand and blocking it. Otherwise, the hotel or rental agency might find that your credit is not sufficient to cover the bill leaving the merchant unpaid. Credit and debit card blocking can also be used sometimes for restaurants for anticipated sizable bills for large groups and dinner parties. Once again this is done to ensure that enough account money or credit will be available to to complete the payment at the end.
If you are not close to your credit limit, the amount being blocked but probably not cause a problem. However, if you have already utilized much of the credit limit on your card, you might have your card declined which can be embarrassing and inconvenient. Blocking off a certain amount can also lead to a shortage of available funds for an emergency purchase or need. The debit cards of course depend upon the balance in your bank account and a block on the debit card will result in the funds in your bank account being held. Blocking in this case could lead to charges for insufficient funds while the block remains in place.