Why do hotels need my credit card for a "hold"?

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Whenever I arrive at a hotel and check in with the front desk, the staff will always ask me for my credit card and photo ID regardless of whether I’ve already paid for the room or not. They often say something along the line of “we just need the card for authorization/hold/incidentals”. As frequent travelers, I must admit that I didn’t quite understand the difference between these terminologies, and hotel staff seem to always use them interchangeably.

What is an authorization? Is a hold different than an authorization? What about incidental hold?

Here's how you can explain authorizations, holds, and incidentals in plain english to your inquisitive guests.

Let’s use an example. Let’s assume I’m a guest staying at your hotel and I have a reservation for one night which would come to a total of $400 room+tax.

When the front desk staff runs my credit card, they are essentially communicating with my credit card issuer. Hotels need to communicate with the card issuer for a few reasons:

• They need to check if the card is real and I am who I say I am
• They want to make sure that I have enough money to pay for the total of my stay ($400 room+tax)
• In the rare case that I damage anything in the room, do I have additional money that I would be able to pay to offset the cost of the damage or the incidental? Maybe an additional $100 just to be safe.

The hotel has just asked my card issuer to authorize $500. This signals to the hotel that I, as a guest, am able to pay up to $500 for my stay. At this point, according to the card issuer, my available fund would go down by $500 because there’s a hold, but I am not charged for this transaction yet.

During my stay, I broke a lamp in the room and drank a can of soda from the mini-fridge. The lamp is worth $20 and the soda was $5.

When I check out, I am due for a total of $425. The result is that I am now actually charged for $425 and the other $75 goes back into my account.

What is an authorization?

It is a guarantee from my card issuer or bank that I have at least $500 and I am prepared to pay up to $500 to the hotel if I need to.

When I check out, the hotel tells my card issuer that I ultimately owe $425, and I will be charged that amount.

Is a hold different than an authorization?

A hold is a promise from the card issuer or bank that the sum of money ($500) cannot be used for anything else for the time being, hence why my available fund would go down by $500.

A hold is a promise that the fund is available while the authorization is the act of obtaining the transaction.

What about incidental hold?

An incidental is the additional cost to my stay that is beyond the cost of the room+tax. I broke the lamp, so that’ll come out of the additional $100 that was authorized and on hold. Anything that is “charged to the room” like the can of soda will also come out of the $100 dollars first.

Because the hotel is authorized to charge up to $500, they don’t need to run your card again to charge for the lamp and the soda.

However, if the incidental cost exceeds the $100 that we have set aside, there is no guarantee that the hotel will receive additional money if they charge me again, because I might only have $501 in my available balance. If I am able to pay more, great. If not, then the hotel may lose out on money, but that is a risk they are willing to take when they set the incidental to be $100.  

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