Merchants obtain authorization when a customer presents a credit card to use for payment. After the merchant runs the credit card through the processing system, he receives an authorization code, usually two to six digits in length, from the financial institution indicating whether the credit card is approved for the sale amount or denied. Sometimes the code indicates that the merchant must retain the card and not return it to the customer.
Credit card authorization codes are usually obtained immediately at the point of sale. The most common method for obtaining approval is through a retail terminal, though the merchant can also acquire authorization over the telephone. Each authorization code is associated with one transaction for a specific amount. Approval typically depends on the consumer’s available credit.
If the credit card is declined, the authorization code tells the merchant and the client why and what, if any, actions to take. Decline codes fall into three general categories:
- Decline failure codes. The customer's bank refuses to approve the transaction. In this case, it's up to the customer to contact the bank to investigate the reason, such as the customer being over her credit limit or the card being on temporary suspension for suspicious activity.
- Hold-call failure codes. These codes require the merchant to keep the customer's card and contact the issuing bank. Usually the account has been closed for fraudulent activity, such as the credit card being reported stolen.
- Error failure codes. Various types of system errors can prevent a transaction from being approved. This doesn't mean the credit card account will always fail, only that the current transaction has failed at that point in time. A common error is that the expiration date on the card has passed. The merchant could also have entered the wrong information and simply needs to run the transaction again with the correct data.