Secured vs Unsecured Credit Card: The Difference and Impact for Small Businessd

Secured vs Unsecured Credit Card: The Difference and Impact for Small Businessd

Secured vs Unsecured Credit Card: The Difference and Impact for Small Businessd

A secured card lets a business owner with bad credit or no credit history build credit by demonstrating responsibility and timely monthly payments. Unlike a prepaid card or  a debit card, secured credit card usage is reported to the major credit bureaus, which may help build good credit. 

However, it’s worth noting that there are very few secured business credit cards. Most secured cards are offered to consumers, not businesses. 

When Should You Get A Secured Credit Card?  

All together, an unsecured credit card is preferable. The credit limit is almost always higher than a secured card and it is not tied to a deposit.. The purchase APR (annual percentage rate) and charges (like the annual fee) are commonly lower. Conscientious use of unsecured cards helps build your credit, as it does with secured cards. These cards also sometimes offer attractive incentives to cardholders such as airline mileage or cash back rewards (along with an  annual fee). 

However, if you are unable to qualify for a traditional credit card, a secured card provides many benefits that will help you rebuild bad  credit or establish good credit as long as you make your payments on time. Careful use of  secured debt can potentially give you access to new and different types of financing for your company, including unsecured personal loans and/or business loans. 

Which is Better: A Secured or Unsecured Card?

Ultimately the best card is the one that offers you the best terms for which you qualify. For some, that may be a secured card now and an unsecured card in the future, after you’ve built credit. However, there are pros and cons to each type of card you’ll want to consider: 

Pros and Cons of Using Secured Credit Cards for Small Business

If you are considering a secured credit card, there are advantages and disadvantages to consider. 


  • Easy to obtain: It’s likely a borrower will be approved as long as they have a deposit, even if they have a bad credit. (Keep in mind most secured card issuers will require a credit check, and may reject applicants with certain credit problems such as an open bankruptcy.)
  • Credit reporting: Credit card companies that issue these cards report payment history to the major credit bureaus. If a borrower uses the card responsibly and pays debt on time, they can improve their credit ratings and eventually gain access to other types of financing like an unsecured loan. Most secured cards do not report to the business credit agencies, however. If your goal is to build business credit, you may need to consider trade credit accounts instead. 
  • Teaches fiscal responsibility: With a secured card, it’s harder to run up a large amount of credit card debt, simply because the credit limit is likely to be small. 
  • Refundable: If you decide this card isn’t for you, it is possible to get your deposit back (or the amount that remains after the balance is paid off). 


  • Security deposit: To get a secured credit card, you need to have cash available for the deposit. The amount of that deposit won’t be available to spend until you pay off and close the account. 
  • Costs: Fees (such as the annual fee) may be higher than those of unsecured credit cards. Interest rates may be higher as well, though you can avoid paying interest if your card offers a grace period and you pay the statement balance in full by the due date. 
  • Limited perks: Secured cards may offer more limited rewards such as  cash back on certain purchases or airline mileage. Additionally, balance transfer is difficult to come by. Cash advance and balance transfer amounts will be limited or inaccessible. 
  • Nothing is guaranteed: Even if you have a deposit, your approval for a secured card is not promised. Additionally, if you prove yourself responsible and repay the loan, there is no assurance that your lender (or another) will offer you other loans or financing options with better rates and terms.   

Pros and Cons of Using Unsecured Credit Cards for Small Business

Most small business owners use unsecured credit cards to help launch their business. Whether or not this is the best choice deserves some consideration. 


  • No deposit: You don’t need to have cash on hand to acquire an unsecured card, though you may be charged an origination fee or an annual fee. 
  • Higher limit: The credit limit is most often higher on unsecured cards because it is not tied to your deposit amount. The highest credit limits tend to go to applicants with excellent credit. 
  • More attractive deals: Rates, terms, and fees, like the annual fee, vary widely on unsecured cards Applicants with excellent credit and a history of making monthly payments on time are likely to qualify for cards with lower interest rates.
  • Rewards: Unsecured cards come with rewards, from cash back to travel rewards. And, balance transfer options are often readily available if you want to use the card for debt consolidation. Always be mindful of whether the rewards outweigh the fees and interest you pay. 
  • Line of credit: Unsecured cards let you buy things you otherwise wouldn’t be able to afford by extending a line of credit. Your credit card company serves as a lender, allowing you to pay off debt over time. 
  • Building credit: Conscientious use of any type of credit card will positively impact your credit score, giving you more options when it comes to financing, including business loans for small business. Many small business credit cards report to business credit, which can help you build business credit. (Here’s a list of how major credit card issuers report.)


  • Hard to get: If you don’t have bad credit or a lot of outstanding debt, an unsecured card with reasonable rates may be difficult to find. 
  • Allows overspending: Without the credit limit regulated by a deposit, an unsecured card makes it very easy to spend money you don’t have and may not be able to pay back. 
  • Future impact: Responsible use of credit, when reported to the credit bureaus, can help your business grow financially. On the other hand, reckless use can affect your future for years down the road. Taking on too much debt, applying for too many credit cards, or harming  your credit scores with unpaid bills is something you can’t reverse instantaneously. Building back a strong financial history will take years. 

How To Apply for a Secured Business Credit Card

Unfortunately there are few secured business credit cards available. (Nav can help you find and apply for credit cards based on your qualifications.) Once you find a card and apply, the card issuer will run a credit check to confirm your identity and credit scores. When you are approved, you will have a certain number of days to make the deposit and then receive the card. If you can’t find a card you want online, you may want to ask your bank or credit union if they offer one of these cards.  

How To Apply for an Unsecured Business Credit Card 

The application process for an unsecured credit card is similar to that listed above, minus the security deposit. Because there are so many options for business credit cards with a variety of rewards, you might want to spend some extra time researching the choices to ensure your card is providing you with meaningful benefits that offset any potential annual fee. 

How To Effectively Build Credit With A Secured Credit Card

If you’re wondering whether secured cards really help your credit, the answer is “yes,” provided you do two things:

  1. Pay at least the minimum payment on time each month. Late payments can significantly hurt your credit scores. Consider setting up autopay so your minimum payment is never paid late. 
  2. Keep balances low. Credit scores take “credit utilization” into account by comparing the balance that appears on your credit report to the credit limit. High utilization on any one card (or all cards added together) can hurt your credit scores. Since your credit limit is likely small, you’ll need to keep a close eye on this ratio.

Final Word: Secured vs Unsecured Credit Card

Both secured and unsecured cards have beneficial applications depending on your unique business situation. If you have poor credit or a lot of  debt and need to improve your credit, a secured card can help you do that. If you don’t know what your credit score is, you can get free business credit scores online. Otherwise, unsecured cards offer the best deals and rewards to help fund business growth.

This article was originally written on February 3, 2020 and updated on November 9, 2020.

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