Secured vs. unsecured credit cards for businesses: 6 key differences

Building a solid financial foundation for your business often involves utilizing credit cards. While unsecured cards offer greater flexibility and rewards, they may be challenging to obtain for startups or businesses with limited credit history.

The main difference between secured and unsecured credit cards is that secured cards require a security deposit as collateral, while unsecured cards offer a credit limit based on the creditworthiness of the borrower.

In this guide, we'll provide a detailed explanation of secured versus unsecured credit cards, including how they work, so you can decide which type to choose for your business.

Differences between secured and unsecured credit card

Here’s a quick overview of secured versus unsecured business credit cards.

1. Secured credit cards require a deposit

Secured credit cards require a cash deposit as collateral. This deposit serves as a security measure for the credit card issuer in case you fail to make payments. The credit limit on a secured card is typically equal to the amount of the deposit, although some issuers might offer a slightly higher credit limit.

This deposit protects the issuer and allows individuals with limited or poor credit histories to build or rebuild their credit, as payments are reported to credit bureaus like with regular credit cards.

2. You can generally only get an unsecured credit card with good credit

The minimum recommended credit score to qualify for an unsecured credit card is usually a FICO score of 670 or higher, whereas secured credit cards are a good option for individuals with no credit history or scores below 669.

While good credit significantly improves your chances of getting an unsecured card with favorable terms, it's not an insurmountable barrier. Unsecured credit cards for bad credit are available, but they typically come with higher interest rates and fees compared to cards for those with good credit. Examples of personal bad credit credit cards that are unsecured include the Credit One Platinum Visa, the Mission Lane Visa, the Indigo Mastercard, and the Prosper Credit Card.

Unsecured business cards for bad credit include the Capital One Spark 1% Cash Back for Business and the Ramp Business Credit Card.

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3. Secured cards are typically better for building credit

While both secured and unsecured cards can help build credit, secured cards can be particularly effective for individuals with limited or damaged credit. Secured cards often emphasize responsible credit use due to their lower credit limits, which helps individuals establish a positive payment history and avoid excessive debt.

Whether you use a secured or unsecured credit card, the process of building good business credit is the same. Lenders generally provide details of your payment history and card balance to the three major business credit reporting agencies (Dun & Bradstreet, Experian, and Equifax).

» Learn more: What is a DUNS number and how do I get one?

4. Unsecured cards are more likely to have rewards

Unsecured credit cards generally offer more attractive rewards programs compared to secure cards. To incentivize borrowers and attract customers, they often offer competitive rewards like cash back, travel miles, or points on purchases. In contrast, secured cards—designed for building credit over offering extensive perks—may have limited or no rewards programs.

5. Interest rates tend to be higher on secured credit cards

Secured cards often have higher interest rates because they are designed for individuals with limited or bad credit histories, posing a higher risk to lenders.

That said, it's not a universal rule. Interest rates on both secured and unsecured cards can vary significantly depending on factors like the applicant's creditworthiness, the lender's policies, and the specific card features.

6. Credit limits are higher on unsecured cards

Since secured cards have credit limits directly tied to the initial security deposit, it is often lower than what you might see on an unsecured card.

The credit limits on unsecured cards differ in that they are determined by the applicant's overall creditworthiness, income, and other factors, thus generally giving the cardholder more spending power.

‍What is a secured credit card?

When you spend money using a secured credit card, that money is added to your balance and deducted from your available line of credit. You then have the option to pay the balance off completely or carry the balance month to month, making small payments. If you take the month-to-month route, you’ll pay interest charges as a result.

Secured credit cards give you a way to show lenders that you and your business are worthy of unsecured options. When used responsibly, they can help build a good business credit score and lead to better credit card options in the future.

What is an unsecured credit card?

Standard credit cards are classified as “unsecured” cards. They don’t require a security deposit to open, and the credit limit is based on your creditworthiness. Generally, an unsecured business card should be your first choice, unless you have bad credit. These cards usually offer better interest rates and better rewards than secured cards.

Unsecured credit cards offer a revolving line of credit with payments required each billing cycle. With both secured and unsecured credit cards, it’s important to pay at least the minimum payment by the due date. Late payments negatively affect your credit score and can lead to your interest rate increasing.

Applying for a secured vs. unsecured credit card

The application process is the same for secured and unsecured credit cards. Once you choose a card, you can apply on that credit card company’s website. Typically, a business credit card application will ask you for the following information:

• Business details: Your business name, address, industry type, legal structure, tax ID (EIN or SSN for sole proprietors), annual revenue, years in operation, and number of employees.
• Personal details: Your name, contact details, Social Security number (SSN), ownership percentage, and role in the business.
• Financial information: Estimated monthly spending and the intended use of the card.
• Credit and security: Authorization for a credit check and agreement to a personal guarantee, if required.

When applying for a secured card, the applicant will also need to provide details about the security deposit, such as:

• The amount of the deposit: This will directly influence the credit limit.
• The method of deposit: How the deposit will be made (e.g., bank transfer, certified check).
• Account information: Information about the account from which the deposit will be drawn.

Which is better, an unsecured or a secured credit card?

Unsecured credit cards are the better option if you’re able to qualify for them. Here's why.

Benefits of unsecured credit cards:

• Rewards: Unsecured credit cards offer better rewards, like travel rewards, points, or cashback rewards.
• Access to capital: Capital restrictions are one of the biggest pains business owners face. Unsecured credit cards give you access to higher lines of credit—and more capital.
• Expense management software: Certain business cards come with expense management software to help you manage your finances.

There are also the key downsides to keep in mind with respect to secured credit cards.

Cons of secured credit cards:

• Fewer (if any) rewards compared to unsecured credit cards
• A credit limit that’s based on the amount of the security deposit
• A security deposit requirement to sign up

Transitioning from a secured to an unsecured credit card

If you use a secured credit card responsibly, in time, your credit card issuer may offer to upgrade you to an unsecured card.

This outcome relies on consistent, timely payments and a low credit utilization ratio. Upon converting the card to unsecured, your issuer will remove the requirement for a security deposit.

Do you ever get your deposit back on a secured credit card?

You can get your deposit back on a secured credit card if you close the account and have paid off the entire balance, or if the issuer offers an upgrade to an unsecured card after demonstrating responsible use and good payment history.

Some issuers may return your deposit while allowing you to keep the account open as a sign of trust in your creditworthiness. Policies can vary, so it's important to check with your specific card issuer.‍

Here's what to expect if you transition from a secured to an unsecured card:

1. Return of deposit: The cash deposit you initially made is returned to you. This refund can either be a direct payment or a credit to your account.
2. Credit limit increase: Unsecured credit cards often come with higher credit limits. This increase reflects the issuer's trust in your ability to manage credit effectively.
3. Improved credit profile: Transitioning to an unsecured card is a positive move for your credit report. It shows future lenders that you have successfully managed credit under more stringent conditions.
4. Access to better terms: Unsecured credit cards may offer more favorable terms, including lower interest rates, better reward programs, and fewer fees.
5. Continued credit building: Using your card responsibly remains crucial. Aim to make on-time payments and keep your balance low to further improve your credit score.

Build credit with a secured card

If your business doesn’t qualify for an unsecured credit card, you can use a secured card to build your business credit and open the door to an unsecured credit card down the line. Make sure you follow these best practices to build a strong credit history:

• Payments: It’s imperative to make your payments on time, every time. It’s also a good idea to pay as much of your balance off as you can each month and avoid making minimum payments.
• Spending: Be sure to keep your spending in check. Never spend more than 30% of your credit limit, as doing so will raise your credit utilization rate, potentially harming your credit score.
• Ask for limit increases: Most lenders won’t automatically increase your limit, but a higher limit could improve your credit score. After you’ve used your card properly for at least six months, call the lender and see if you qualify for a credit limit increase.

Try Ramp's unsecured business credit card

Ramp offers an unsecured corporate card that can be a valuable option for businesses, especially those with limited credit history.

Ramp's underwriting process often prioritizes factors like business revenue, transaction history, and customer base, rather than solely relying on traditional credit scores. This can make it easier for businesses with limited credit histories to qualify.

If your business operates online, Ramp's sales-based underwriting can be particularly beneficial. This approach evaluates your business's sales data to assess its financial health and creditworthiness.

Competitive features include high cashback rewards, expense management tools, automated bill payments, and even early payment discounts.

Consider Ramp if:

• You have a limited credit history or are struggling to qualify for traditional business credit cards.
• You're an e-commerce business looking for an alternative to traditional credit score-based underwriting.
• You're seeking a corporate card with competitive rewards and robust expense management features.