27+ reasons why credit cards are declined

Credit card transactions can be confusing, especially when they are declined. Understanding why a transaction might not go through is important for cardholders and merchants. It can save time and frustration and help to make financial operations run more smoothly.

Understanding these reasons is important to ensure that transactions are successful. You can achieve this by contacting the credit card company, checking the information entered, or contacting the merchant directly. Addressing these issues can make the process of credit card transactions easier and less stressful for everyone involved.

Why can credit cards be declined?

This article provides a detailed list of factors contributing to credit card declines, specifically for merchants. The factors are classified into five categories: technical issues, cardholder-related challenges, bank policies and restrictions, merchant-specific considerations, and regulatory and legal frameworks. Each section offers essential insights to help merchants navigate the complexities of credit card transactions. Whether processing online purchases, in-store transactions, or bookings, understanding these factors will help merchants optimize payment processing, reduce declines and enhance overall transaction efficiency.

Technical causes of credit card declines

When a credit card transaction is declined due to technical issues, it can be frustrating and confusing for the cardholder. Technical problems can arise at various points in the transaction process involving the hardware, software, or network components used by merchants, banks, or payment processors. Understanding the common technical issues can help diagnose and avoid these inconveniences in the future.

1. Network outages: A network outage is a common issue that can lead to declined transactions. This could be due to a failure in the banking network or issues with the merchant’s internet service. With a stable connection, the transaction request can be processed.
2. POS system failures: Point of Sale (POS) systems are crucial for processing credit card transactions. Hardware malfunctions, software glitches, or outdated systems can lead to transaction failures.
3. Payment gateway issues: The payment gateway is the intermediary between the merchant and the credit card processor. Any disruptions or malfunctions in this service can cause transactions to be declined.
4. Data transmission errors: During the credit card transaction process, data is sent back and forth between multiple parties. Errors in data transmission, such as incorrect formatting or incomplete data packets, can result in a declined transaction.
5. Server downtime: Both merchant and bank servers can experience downtime due to maintenance, technical failures, or overload. If the server processes transactions offline, no transactions can be approved during that period.

These technical issues are often beyond the cardholder’s control, but understanding them can provide insights into the complexities of payment processing and why transactions don’t always go through as expected. Implementing a robust payment orchestration solution can help merchants mitigate these challenges by dynamically routing transactions through the most efficient and reliable payment methods, optimizing authorization rates, and reducing the impact of technical disruptions.

Common cardholder problems

Declined credit card transactions can often stem from issues directly related to the cardholder’s actions or account status. These issues are usually preventable and can be addressed by cardholders being more vigilant about their credit card details and account management. Here are five common cardholder-related reasons for credit card declines:

1. Insufficient funds or credit limit reached: One of the most straightforward reasons for a declined transaction is needing more funds or exceeding the credit limit on the card. This prevents further transactions until the balance is reduced or the credit limit increases.
2. Incorrect card details entered: Mistakes in entering credit card information, such as the wrong card number, expiry date, or CVV, can lead to a decline. This is common in online transactions where the cardholder inputs the details manually.
3. Expired card: Using an expired credit card is a frequent oversight that results in declined transactions. Cardholders should know their card’s expiry date and ensure they receive and activate a replacement card before the old one expires.
4. Card not activated: New credit cards must be activated before use. The transaction will be declined if a cardholder attempts to use a card before completing this step.
5. Multiple denied transactions: If incorrect information is repeatedly entered during transactions, the card might be temporarily disabled as a security measure. This is to prevent what appears to be fraudulent attempts to use the card.

Cardholder-related issues are often within the individual’s control, and paying attention to card management details can help avoid these kinds of declines. Regularly updating card information, keeping track of the card status, and carefully input of transaction details are key practices for smooth credit card use.

Explore the comprehensive guide in our blog post “Credit Card Decline Codes: Updated List and How to Fix Them (2024).“ This article provides an in-depth look at the various reasons credit cards are declined and practical steps you can take to address these issues effectively. 

Bank policies and restrictions

Banks and credit card issuers implement various policies and restrictions to manage risk, comply with regulations, and protect cardholders from fraud. These measures can sometimes result in declined transactions when certain conditions still need to be met. Understanding these policies can help cardholders anticipate potential issues and manage their accounts more effectively.

1. Blocked transaction types: Certain types of transactions may be automatically blocked by banks. For example, many banks restrict transactions related to online gambling or purchases from countries with high fraud rates. This is to prevent unauthorized use and potential financial loss.
2. Holds or freezes on account: If a bank detects suspicious activity, it may place a hold or freeze on the account. Unusual spending patterns, attempts to access the account from an unfamiliar location, or other red flags can trigger this. All transactions will be allowed once the bank confirms that the activity is legitimate.
3. Restricted merchant categories: Some banks restrict transactions with merchants in specific categories considered high risk. This could include certain overseas merchants, luxury goods retailers, or other sectors where fraud rates are statistically higher.
4. Closed or canceled credit card account: If an account is closed, whether by the cardholder or the bank (due to inactivity, breach of terms, etc.), all attempts to use the card will be declined. Cardholders should be aware of the terms of their account to avoid unexpected closures.
5. Compliance with regulatory requirements: Banks must comply with financial regulations, including anti-money laundering laws and sanctions. If the bank identifies a risk of violation, this compliance can lead to declined transactions. For instance, transactions involving countries under government economic sanctions may be blocked.

These bank policies and restrictions are designed to protect the financial system and the cardholder, though they can sometimes inconvenience the latter. Awareness of these policies can help cardholders navigate their banking use more effectively, ensuring fewer surprises when making transactions.

Merchant-specific issues

When a credit card transaction is declined, the reasons are sometimes specific to the merchant where the purchase is made. Merchants have their own rules and systems for processing credit card payments, which can sometimes result in transaction denials. Understanding these merchant-specific issues can help cardholders anticipate and possibly avoid purchasing complications.

1. Merchant’s acceptance policies: Some merchants may choose not to accept certain types of credit cards due to high processing fees or past experiences with fraud. For instance, smaller merchants might refuse cards with higher fees, such as premium credit cards, to avoid the associated costs.
2. High-risk merchant category: Merchants operating in high-risk industries (like electronics, jewelry, or online marketplaces) may have stricter transaction controls. These controls can include additional verification processes that, if failed, result in transaction declines.
3. Merchant-specific transaction limits: Some merchants limit the size of transactions that can be processed, which is particularly common in high-fraud areas. Transactions exceeding these limits are automatically declined to minimize potential losses.
4. Technical issues with merchant equipment: Merchants’ credit card processing equipment, such as card readers or online payment gateways, can malfunction or be outdated, leading to declined transactions. These issues can stem from software glitches, hardware failures, or compatibility issues with certain cards.
5. Security Measures and Compliance: Merchants are required to comply with Payment Card Industry Data Security Standards (PCI DSS). If their systems detect security risks or potential breaches, transactions may be declined to protect customer data. For example, repeated failed attempts or suspicious patterns in ordering can trigger declines.

Merchant-specific issues can vary widely but typically revolve around their particular policies, the technical capabilities of their payment systems, or regulatory compliance measures. By understanding these potential hurdles, cardholders can better navigate their purchases and address any issues that might arise during transactions.

Regulatory and legal

Credit card transactions are not only governed by the policies of issuing banks and merchants but also by stringent regulatory and legal frameworks. These laws are designed to protect consumers and financial institutions, ensure the security of financial transactions, and prevent illegal activities. Understanding these regulations can help explain why some credit card transactions might be declined.

1. Anti-money laundering (AML) laws: To combat money laundering, banks and financial institutions are required to monitor and report certain types of suspicious transactions. Transactions that exceed a certain threshold or seem out of character for the cardholder can be flagged and declined as a preventive measure. More information is available here.
2. Know your customer (KYC) regulations: KYC requirements mandate that banks verify the identity of their clients and understand the nature of their activities. If a bank cannot adequately verify a customer’s identity due to incomplete or outdated information, it may decline transactions as a compliance measure.
3. Sanctions and watchlists: International and national regulatory bodies maintain lists of individuals, organizations, and countries subject to economic and trade sanctions. Transactions involving sanctioned parties or countries are automatically declined to comply with these legal restrictions.
4. Credit card network regulations: Credit card networks like Visa, MasterCard, and American Express have their own set of rules and standards that all participating institutions must follow. Violating these standards, such as a merchant needing to follow proper security protocols, can lead to transaction declines.
5. Data protection and privacy laws: Regulations such as the General Data Protection Regulation (GDPR) in Europe and similar laws in other regions enforce strict rules on the handling and processing personal data. To prevent potential legal issues, transactions that might compromise a cardholder’s personal data or fail to meet these legal standards can be declined.

These regulatory and legal requirements are crucial for maintaining the financial system’s integrity and protecting consumer rights. While they can sometimes inconvenience cardholders, they are essential for preventing fraud, ensuring privacy, and maintaining trust in the financial system.

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