When you buy something with a credit card, the seller contacts your credit card company or the credit-processing company for a credit card authorization code, which tells him whether or not he can accept the credit card for payment. The credit card authorization code, when decoded, either approves the transaction or denies the transaction. It also transmits additional information about the card verification process that protects you from the bad guys who would steal your identify, and make false charges to your account.
The Basic Code
The credit card authorization code confirms the transaction and forms the first line of defense against credit theft. When a merchant or store where you make a purchase contacts either a processor or your credit card company, the authorization code confirms that your transaction was processed and gives an approval or denial. Approvals or denials are based on your availability of credit. Two other checks are confirmed with the transaction.
Structure of the Code
The credit card authorization code contains more information than just an approval or denial. The heart of the number is a five- or six-digit authorization code. This code is generated whether the transaction is approved or denied. Additionally, there are two other codes that pertain to address and card verification value matches. This information includes information about an address verification or AVS and card verification value or CVV match.
Address Verification Check
You might worry that adding your ZIP code or address to a purchase reveals too much information to the store. The primary reasons for address verification are additional security and fraud protection. When you use the credit card at a gas station pump, you are usually asked for a ZIP code. When ordering online or over the phone you are asked for your address. The ZIP code and the address are checked during the credit card authorization. The credit card authorization code confirms if the ZIP code or address is valid.
Card Verification Check
Ever wonder why you have to add the three-digit code printed on the back of the card to your online or phone purchase? This is the card verification value, and it is also designed for additional security and fighting fraud. This code is a check to make sure the person placing the order has the card in hand, not just the credit card number, which could have been stolen. The credit card authorization code confirms if the three-digit CVV matches the rest of the credit card number.