Blocks on credit cards can cause a lot of trouble. Find out what they are and how to stay away from them.
Most people who travel often know all about credit card blocking, and many have learned the hard way. Hotels put up signs that explain their blocking policies. Usually, this is in the form of a small plaque that some clerks will point out to curious guests when they check in. When people call to reserve an SUV for a family vacation, car rental companies quickly tell them their rules. Still, credit card blocks hurt hundreds of people every day who didn't see it coming. So what are these blocks exactly?
As a way to lower their risk, credit card companies can set aside or "block" a charge that will happen in the future. This block doesn't charge the account right away, but it does lower the amount of credit that can be used. Plus, the amount of the block may be more than expected because the bank may estimate extra costs like gas for a rental car or food for a hotel stay. A $100 block can be put on a card even for a pay-at-the-pump transaction. If you don't know about them, these blocks or "holds" can put you in some pretty hard situations.
Let's say you're taking a flight to Las Vegas for the weekend. If you are not already a high-roller, you will need to book a flight, a rental car, and a hotel room. Each of these reservations will put a hold on your rewards credit card, which is always there for you. Then, to help your partner get over the fact that you're going on a trip, you take them to the best restaurant in town. Imagine how surprised you will be when the waiter tells you and the people at the two tables around you that your charge has been turned down.
In another, even worse scenario, the person would pay for these charges with a debit card. With each reservation, a hold would have been put on the checking account that the credit card was tied to. Then the flowers, dinner, cab fare, and concert tickets would have all caused separate overdraft fees. Also, any checks that clear while the blocks are in place will not be paid. Ouch.
The smartest way to avoid having your credit card blocked is to keep your balance well below your usable limit. Even though this is good advice, it may not always work because the amounts and times of the blocks are not always clear. One thing that is always true is that a debit card should not be used to make a reservation. Ever.
Having a spare credit card is another way that might work better to avoid this trap. A spare credit card can be used to make all the reservations, which is a method that many people use. This protects the available credit on your preferred card. Then, when the actual charges are made, the favourite card can be used and any rewards can be added up. One more benefit is that the block transactions keep the spare card active, which increases its value as a way to improve your credit score.
When it comes to credit, knowledge and a little bit of foresight can go a long way toward preventing problems and costs that come out of the blue. Now that you know what to look out for, you should take some steps to make sure you don't fall into the credit blocking trap.
