As a hotel front desk associate I always ask the guest whether the cards they present to me to make payment is a debit or a credit card before I do a pre-authorization. Most people know the difference but there are the few that look at me with this blank look, “What’s the difference between a credit card and a debit card? Is there one you accept and another that you don’t?” That’s just one of the questions I get. I will tell you the difference, it’s simple,
For a debit card, one uses money from their bank account. This is money that you already have, if you have 1000$ in the bank then that’s the maximum you can use. This is what most of you have as ATM cards.
For a credit card, well as the name implies the money being used is on credit. The bank gives you a certain limit which you can use. Here you are not using money from your account; the bank is giving you the money on credit which you will later replay. It’s like a loan, an instant loan.
How a Pre-authorization Works
The reason I ask clients that question is not because I care about what kind of card they are using, I do not give a hoot personally but it saves one a lot of trouble. The hotel takes a pre-authorization on credit cards and this is where it will block some amount of money on your credit card such that you are not able to use it but at the same time the hotel does not have the money yet. The hotel will do this to your card when checking in and the transaction will be completed at check out. Only the amount you have utilized will be completed. For instance, if a pre-authorization of 500$ was taken on your card but at the end of the stay, you have only utilized 450$, only the 450$ will be charged on the card and the 50$ will be released back to your account. If you had utilized 650$ then the amount that will be charged on the card is 650$ that is an extra 150$ on top of the 500$ that was pre-authorized. Sound complicated right?
For that kind of transaction, it only works for a credit card. If one presents a debit card and a pre-authorization is done, the money will be deducted from the account and in to the hotels account immediately. If a completion is done of the amount that had been utilized, then some more money will be transferred to the hotels account. Let me give you an example, a guest will come at the hotel, I (the receptionist/cashier) will take the card and do a pre-auth of 500$. At check out, the guest will present the card again for a completion transaction. Let’s say he had utilized only 450$. I will do a completion transaction of 450$. Later the guest will call the hotel and complain that he had been double charged, that is 500$ and the 450$. These mistakes will happen mainly because when one does a pre-authorization on a debit card, the receipt that comes out of the PDQ machine will still indicate that it was a pre-authorization but in actual sense the amount will have been deducted from the card holder’s account.
That’s why it is very important to know which card you have and when making transactions especially with hotels, let them know. Today it is difficult to know the difference between a credit card and a debit card by simply looking at it. It used to be easy in the past but today banks are issuing debit cards that look exactly like credit cards and vice versa. If you are a business traveler and the company gives you the company card, make sure you ask whether it’s a credit card or a debit card.
With that, I am sure you now know what a pre-authorization is and how it works differently on debit and credit cards. If I still haven’t explained something that you need to know, feel free to contact me below and I will be glad to help.