Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Negative Authorization

What it is:

Negative authorization is the term for a credit card system that approves or disapproves a credit card transaction based on whether the card appears on lists of stolen, canceled, closed, or lost account numbers.

How it works (Example):

For example, let's assume John purchases $200 worth of widgets at Sears. He pays with his Visa card. If the card approval system uses positive authorization, it will check John's credit card account to see if he's gone past his limit, used an expired card or supplied an address that does not match his account. The system will do this as a condition of approving the charge.

If the card approval system uses a negative authorization, it essentially compares John's credit card number to a list of "bad" card numbers (closed, lost, stolen, or canceled) and approves the transaction if his card number is not on those lists.

Why it Matters:

Negative authorizations intrinsically are less secure than positive authorizations.