What Are Secured Credit Cards?

If you’re having trouble qualifying for a traditional business credit card, a secured business credit card may be an option.

These cards require a refundable security deposit and can help business owners build or rebuild credit. Here’s how secured business credit cards work and when they’re worth considering.

What Is A Secured Credit Card?

A secured business credit card is a credit card that requires a refundable security deposit. These cards are usually designed for business owners with poor credit, limited credit history, or trouble qualifying for an unsecured card.

How Secured Credit Cards Work

Secured business credit cards require a refundable security deposit. The card issuer uses that deposit to reduce its risk and, in many cases, to set your credit limit.

For example, if you put down a $1,000 deposit, your credit limit may also be $1,000. Some issuers may offer a higher limit than your deposit, but that depends on the card and your qualifications.

You can then use the card like a regular business credit card. If you make payments on time and keep your balance manageable, a secured card may help you build or rebuild credit.

Before applying, check whether the issuer reports activity to consumer credit bureaus, business credit bureaus, both, or neither. Reporting policies vary, and the card will only help your credit if the activity is reported.

How Are Secured Cards Different From Unsecured Cards?

The main difference between secured and unsecured cards is the security deposit. Secured business credit cards require a refundable deposit, while unsecured business credit cards do not.

Unsecured cards are usually harder to qualify for because the issuer is approving you based on your credit, income, business revenue, or other risk factors. Secured cards are typically easier to qualify for because your deposit lowers the issuer’s risk.

If you’re not sure where you stand, check your credit score before applying.

The Pros & Cons Of Secured Credit Cards

Secured Business Credit Cards Best Practices

A secured business credit card can be useful, but it should usually be a stepping stone, not a long-term solution. Here’s how to use one wisely.

Only Get A Secured Card If You Need One

A secured business credit card usually makes the most sense if you can’t qualify for an unsecured business credit card because of poor credit, limited credit history, or past credit issues.

If you can qualify for an unsecured card with reasonable terms, that’s usually the better option.

Look For Low Or No Fees

Before applying, check the card’s annual fee, monthly fees, account setup fees, and any other charges. A secured card already requires a deposit, so you don’t want high fees eating into your budget.

Watch The APR

Secured cards can come with higher APRs than unsecured cards. The best way to avoid interest is to pay your balance in full each month. If you think you may need to carry a balance, compare APRs carefully before choosing a card.

Use The Card Responsibly

Use your secured business credit card for purchases you can afford to pay off quickly. Keeping your balance low and making on-time payments can help you build better credit habits and may improve your credit over time.

Also, check whether the issuer reports to business credit bureaus, consumer credit bureaus, or both. A secured card will only help your credit if your activity is reported.

Upgrade When You Qualify

A secured card doesn’t have to be permanent. After several months of responsible use, check whether the issuer offers a path to an unsecured card. Some issuers may review your account automatically, while others may require you to request an upgrade.

If you qualify for a better unsecured business credit card, you may be able to move on and get your deposit back.

When To Get A Secured Credit Card

A secured business credit card can make sense if you need help building or rebuilding credit and can’t qualify for a better unsecured card yet.

When To Avoid A Secured Credit Card

A secured business credit card isn’t the best fit for everyone. If you can qualify for an unsecured card with better terms, rewards, or credit limits, that may be the better option.

You may want to avoid a secured business credit card if:

Are Secured Business Credit Cards The Only Options If You Have Bad Credit?

A secured business credit card can be a good option if you have poor credit or limited credit history, but it isn’t your only option.

Some business owners may qualify for unsecured business credit cards designed for fair credit. These cards may have lower credit limits, higher APRs, fewer rewards, or stricter terms, but they don’t require a security deposit.

You can also look at other ways to build credit, such as vendor accounts, trade lines, business credit-builder products, or responsible use of a personal secured card if your main goal is improving personal credit.

Before choosing any card, check the fees, APR, credit limit, deposit requirements, and reporting policies. A card will only help build the credit you care about if it reports to the right credit bureaus.