Payment cards make paying for goods and services much easier for all consumers. However, while most uses of a credit card are seamless, seeing credit cards declined is a common concern for modern merchants.
There are many reasons why a payment card might be declined, and the way you respond to these instances can make a huge difference to the way your customers perceive your brand.
In this guide, we’ll take a look at the mechanics behind card declines, the various reasons why card transactions might be declined, and how you can respond to these situations in the best way possible.
When a credit card is declined, the reason will be categorised under a particular decline code.
These codes denote a generalised reason why a transaction was declined, and serves to inform the merchant, cardholder, or issuer on what to do next.
Here’s a list of some of the most common credit card decline codes and what they mean:
Code 05: ‘Do not honour’ - This code signifies that the card issuer has declined the transaction for an unspecified reason.
Code 14: ‘Incorrect card number’ - In most cases, this error occurs when a transaction is attempted through an online platform using a payment gateway, and the card entered doesn’t match a real card number. While this is usually the result of human error, it can occasionally be a warning sign of attempted credit card fraud.
Code 41: ‘Lost card’ - This code is returned when the cardholder has reported the card as lost, and the ability to make payments has been frozen to prevent fraudulent activity.
Code 43: ‘Stolen card’ - This code is effectively the same as Code 41, though it occurs when a cardholder has reported their card as stolen, rather than just lost.
Code 51: ‘Insufficient funds’ - This code is returned when the card’s associated account doesn’t have enough money to cover a transaction.
Code 54: ‘Expired card’ - A code signifying that the card is expired and no longer valid.
Code 63: ‘Wrong CVV’ - This error happens when a cardholder enters an incorrect Card Verification Value (CVV), the 3 or 4 digit value found on the back of a payment card used to verify that it’s in the cardholder’s possession.
Code 65: ‘Credit limit exceeded’ - A code returned when the cardholder has gone over the credit limit associated with their card. Before they proceed with the transaction they’re attempting, they’ll have to clear the credit card balance.
Debit cards are a common payment method for online and offline purchases. As a merchant, it’s important to familiarise yourself with some of the root causes for a declined debit card payment so you can better assist your customers if and when these issues arise.
Some of the most common reasons for debit card declines include:
While credit cards draw from a line of credit for their transactions, debit cards are limited by the amount of money available in the account they’re linked to.
Many debit cards also have daily withdrawal and transaction limits. This is put in place so that in the event of any in-person or card not present fraud, the criminal who’s stolen the card or its details won’t be able to steal a large amount of money at one time.
With the prevalence of auto-filled online payment details, it can be easy for consumers to forget about the expiry date on their debit card, and allow their payment cards to expire. If this has happened to one of your customers, and they've received a new card but forgotten to activate it, it could be the cause for a declined debit transaction.
When a customer attempts to make a debit purchase at a physical POS using the chip-and-pin method, and enters their PIN incorrectly too many times, this may be flagged with the issuing bank as fraudulent activity and cause the issuer to decline the transaction.
Various POS systems have restrictions on the kinds of debit cards and card transactions they'll accept.
If, for example, a customer attempts to make a debit purchase at your POS and uses an unsupported card brand, or attempts to swipe a card in a terminal which only supports chip-and-pin transactions from the relevant brand, this will cause a debit card to be declined.
Depending on the card being used, its issuer, and cardholder behaviour, debit transactions that occur outside of the card’s usual geographic region can be flagged as suspicious activity.
Cardholders need to read up on their card issuer’s policies surrounding out-of-country purchases before taking a trip and take any necessary steps to prevent debit card declines, for example informing their bank about their travel plans.
Credit cards share all the same possible reasons for a declined card payment as a debit card. Aside from the reasons listed above, there are various reasons for a declined payment that are more closely tied to credit card use, including:
If a customer’s attempted purchase exceeds their credit limit - the amount of credit that their card issuer has agreed to extend to them - this will result in the payment being declined.
It’s essential for any consumer using a credit card to be familiar with their limit and keep track of balances so they don’t unexpectedly reach their limit.
When a customer misses a payment on their credit card for the first time, they can usually contact their issuer to settle the outstanding payment quickly. However, if the cardholder misses their payments repeatedly, they could soon find their credit card payments being declined.
Credit card holds are when either a merchant or a card issuer makes some or all of a card’s credit limit unavailable. There are 2 main kinds of credit card holds: authorisation holds and administrative holds.
With an authorisation hold, a merchant places a hold on a card for a specific amount to determine that the card works as intended and that it can pay enough funds to cover a certain future transaction.
This is a common practice for car rental businesses and hotels, in situations where a customer is only required to pay a final bill once the service is rendered.
Authorisation holds can also be used as security deposits to cover the cost of damage to a merchant’s property.
An administrative hold is initiated by a credit card issuer. It can be triggered by certain kinds of cardholder behaviour, such as late payments or a cardholder exceeding their credit limit.
An administrative hold can remain on the card until its outstanding balance is paid to below the card limit, or the cardholder makes consistent, on-time payments for a predetermined period of time.
There are a variety of reasons why a credit card transaction might be declined. Depending on the nature of the decline, the root cause of the issue may start with the merchant, the card issuer, or the processor who supplied the card reader, virtual terminal, etc.
Here is an overview of the common types of credit card declines, sorted according to where the declination originates:
Merchant Category Code (MCC) restrictions: Merchant category codes are codes which payment processors assign to businesses, which can affect the fees that the payment provider charges a business for using their services.
A high risk merchant account, for example, may incur higher fees compared to an account where the processor is confident that the business type is more safe and stable.
In some cases, a card transaction will be declined based on the fact that it involves a merchant classified under a certain MCC.
Address Verification System (AVS) mismatch: An AVS check is a security layer that checks a billing address on a customer account against the address that the card issuer has on file.
Insufficient credit limit: In cases where a cardholder’s credit limit isn’t enough to cover a transaction, the card issuer will decline the transaction.
Cardholder-initiated freezes: If a cardholder contacts their issuer to report a card as stolen or missing, the issuer will freeze the card and decline transactions for a predetermined amount of time.
This is to prevent the card being used for fraudulent transactions. A cardholder may occasionally contact the issuers and place a block on a certain kind of transaction.
Late and missed payments: Card issuers may occasionally decline new transactions for cardholder accounts that have a history of missed or late payments.
Accounts being designated ‘in default’: If a cardholder fails to make payments on their account for a certain period of time, the issuer may close their account under the assumption that the account holder won’t pay.
Fraud detection triggers: Payment providers often include security layers on their POS systems, payment gateways, and other payment touchpoints that are used to detect fraud.
If certain conditions are met, a payment processor’s security systems may flag a transaction as suspicious, and automatically decline a payment.
Technical issues: Like any kind of technology, POS systems can experience technical issues from time to time, for example a connection drop between a card reader and the payment processor, or an authentication timeout.
If a customer tries to make a purchase during one of these issues, they’ll see their credit card declined.
Payment card declines are categorised into hard and soft declines. At a basic level, a hard decline is where the payment card issuer does not approve a payment. A soft decline, on the other hand, happens when an issuer does approve a payment, but the transaction fails at a different stage.
A card has been reported as lost or stolen and the issuer has frozen it as a result.
A card is deemed as invalid, for example because it has expired.
The cardholder’s account has been closed, for example because the cardholder has had a pattern of too many late or missed payments.
A card has insufficient funds.
Something about the cardholder’s spending habits has been flagged as a possible sign of fraud by the payment processor’s security layers.
A card has reached its spending limit.
The transaction has failed an address verification system check.
False declines are any instance where a consumer attempts to carry out a legitimate credit card transaction, but it is falsely flagged as fraudulent and declined.
Payment security layers rely on algorithms which look for common signs of fraudulent activity, and take these as triggers to decline a transaction.
Some of the common triggers that can lead to a false decline include:
A cardholder attempting a purchase in a geographic location far outside where they usually use their card.
Cardholders giving delivery addresses on e-commerce orders that they’ve never used before and are a long distance from the address a processor has on file.
Purchases that are unusually large when compared to the cardholder’s usual activity.
Orders that are made using several different cards but have certain consistencies, such as the account the customer is using to attempt purchases.
While it’s of the utmost importance to stay vigilant and protect customers from credit card fraud, any security layers you use against fraud must be balanced with a conscious effort to avoid false declines.
If customers experience false declines when attempting to shop with your business, but don’t have the same issues with similar merchants, it can risk hurting your reputation and driving away business.
After enough purchases, it’s likely that you’ll experience a customer’s credit card being declined.
Though it may be outside of your control, customers may reach out to the merchant first in these situations, asking questions like “Why is my credit card declined when I have money?” or “I’ve been shopping with you for a long time. Could you tell me why my credit card is declined?”
Credit card declines are inconvenient for merchants and often frustrating or embarrassing for customers. Developing an understanding of what could have gone wrong, and policies for dealing with these situations, will help you approach the situation in the best way possible.
Here are some of the most effective ways you can help customers if their card has been declined and respond properly to the nuances of the situation.
As we established earlier, the different causes for a declined credit card transaction are categorised by various decline codes which will be displayed through your payment processing tools.
If a credit card is declined, your first step should be checking this code and determining what it means.
By checking the error and equipping yourself with the knowledge of what it means, you’ll improve your chances of getting the issue resolved as quickly and conveniently as possible.
Often, a credit card transaction can be flagged as suspicious because there’s some discrepancy between the cardholder information held by the merchant and their card issuer.
When entering the information to complete a transaction, it’s important that details like the customer’s billing address matches with the address tied to their credit card.
In the event of a decline, it’s a good idea to check the order information against the customer’s previous activity, or contact the customer and ask them to verify the information they entered at checkout.
It may be that the customer’s information has recently changed (e.g if they’ve moved to a new residence) and haven’t updated this information on all their accounts.
If the customer has made a simple error when entering details during the checkout process, this can often be solved quickly and easily by fixing the mismatched information.
Another minor issue that can cause a credit card to be declined is when a customer attempts to make a purchase with an expired card, instead of its replacement.
If you’ve had a transaction declined and determined that the information entered by the customer is correct, the next step should be to ask the customer to check whether their card is valid and in-date.
If it turns out they’ve attempted a transaction with an expired card, the solution can be as simple as asking the customer to re-attempt the transaction with a different payment card. If the credit card is valid, however, you may need to direct the customer to contact their card issuer.
If you’ve confirmed that the card details are correct and the payment card in question hasn't expired, the best next step is often seeing if the customer would like to try an alternative payment method.
Mobile wallet apps, or even more niche payment solutions like cryptocurrency, can all allow your customer to complete their purchase without the need for the credit card that’s been declined.
Buy now pay later instalments may also be a good option if the customer has reached their credit limit, though it’s important to handle this subject delicately and make sure staff respect your customers’ privacy.
Suspecting a purchase of fraudulent activity is never a position that a merchant wants to be in. However, with the prevalence of credit card fraud, it’s essential to rule out this possibility when a card gets declined in order to protect your business and your customers from significant financial losses.
The 2023 Annual Fraud Report by leading finance industry collective UK Finance showed that payment card fraud was responsible for almost half (45%) of reported financial losses due to fraud reported in 2022, the largest segment of all fraud types.
If a customer is making a purchase that’s somehow unusual compared to their previous buying habits, this could be flagged as a sign of fraudulent activity, and in turn declined by the card issuer.
In many cases, this will have to be resolved by the customer contacting the card issuer that the attempted transaction was legitimate.
If a card issuer has deemed an attempted transaction as suspicious and opted to decline it, this issue will usually have to be resolved between the cardholder and their issuer.
However, if you feel that you have sufficient information to confirm the customer’s identity from your end, you may want to offer the customer credit with your business to complete the transaction, invoicing them at a later date when they’re able to use a payment card again.
Taking this approach presents its own fraud risks, so shouldn’t be done without caution. If you’re going to offer a solution like this to your customers, it’s important to have strict policies and standard operating procedures (SOPs) to follow, with steps to confirm a customer’s identity such as asking them account recovery questions or asking them to confirm details about their purchase history.
Having these policies in place for when a card decline proves difficult could save your customer a lot of frustration, and improve your chances of retaining their loyalty where other customers may leave your brand for good.
Disclaimer: The contents of this page are intended for informational purposes only and should not be construed as professional advice. For matters requiring legal or financial expertise, it’s recommended to seek guidance from qualified professionals.
Declined credit and debit card FAQs
Do merchants get charged for declined credit card transactions?
Do declined payments affect credit score?
What does a soft decline mean?
What is an example of a hard decline?