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Having a business credit card is more than a convenience; when used responsibly, it’s a crucial credit-building tool. But if your credit score has taken a hit, or if you don’t have a credit history at all, then you’re caught in a conundrum: You need a business credit card to build your score, but your score isn’t high enough to qualify for most business credit cards on the market. To get out of your rut, you just need to look for the best business credit cards for bad credit.
Yes, your bad credit business credit card options are limited, but they do exist. Rather than a standard, unsecured business credit card, your best bet is to go for a secured credit card, which require low- or no minimum credit scores for approval.
Think of your secured card as a stepping stone to bigger and better things: Once you’ve used your secured card responsibly, and boosted your credit score from poor to fair and beyond, you can then qualify for an unsecured business credit card that works even harder for your business. And in the meantime, you can take advantage of the flexibility afforded by a prepaid business debit credit card that doesn’t require a credit check to qualify for.
Before we jump into a definition of secured credit cards, let’s go over what we mean by an unsecured credit card.
When you think of a credit card, in either its personal or business iteration, you’re likely imagining an “unsecured” credit card—so named because these cards don’t require any kind of physical collateral, like a cash deposit, to obtain. (That said, you can pretty much bet that you’ll be signing a personal guarantee when you claim your card, which makes you personally liable for your credit card debt.)
Instead, the unsecured credit card issuer trusts that you’re financially responsible enough to repay your debts every month. And that’s why every card issuer requires its applicants to have a good-to-excellent minimum credit score—usually 620+—to be eligible for its unsecured credit cards, or even apply for those cards at all. Which makes sense. Essentially, your credit score is a numerical indication of your historical responsibility with your debt obligations.
That’s why so many small business owners with poor or no credit histories have a hard time obtaining these important financing tools. It’s also why they should look toward secured credit cards as a solution.
Unlike their unsecured counterparts, secured credit cards require approved cardholders to put down a cash deposit as collateral. Typically, your deposit is equal to your credit limit—for example, if your credit limit is $500, the bank requires a $500 security deposit. Basically, you’re borrowing against your own cash, rather than the bank’s.
If you default on your secured credit card payments, the card issuer can just claim that cash to make up for the missing debt. That inherent security net seriously lessens the creditor’s risk, so they’ll approve “riskier” borrowers—or, those with credit scores on the lower end of the spectrum—for these secured cards.
Once approved, you can use your secured credit card just like a regular credit card. You make purchases with “borrowed” money from the bank, and you (ideally) avoid interest charges by paying your balance in full every month. And if you use your card responsibly, your credit score will improve enough to “graduate” to an unsecured card. Also, don’t worry about that security deposit—you’ll get it back when you move onto an unsecured card.
Now you know the jargon, so let’s move onto the four best business credit cards for bad credit. Some will build credit, some will repair it, and some will just give you spending power.
The Discover it® Secured Card isn’t technically a business credit card for bad credit—those are hard to come by. However, this personal secured credit card still deserves to be on our list.
This card is super-friendly to cardholders looking to move up the credit ladder and graduate to better products in the future. First, you can choose how much cash you want to contribute to your credit line; if you’re strapped for cash, you can simply opt for the $200 minimum. Then, every eight months, Discover automatically reviews your account to see whether you qualify for an upgraded, unsecured account. If that’s the case, they’ll refund your security deposit.
The Discover it Secured Card offers some rewards, too. In addition to no annual fee, it offers 2% cash back on up to $1,000 spent per quarter on gas and restaurants, and an unlimited 1% cash back elsewhere. At the end of your first year, Discover will also match all the cash back you’ve earned since you activated your account. Finally, there are no foreign transactions or over-the-limit fees, and no late fee for your first late payment.
The downside to this credit card for bad credit? The Discover secured card isn’t a secured business credit card; it’s a personal card. That means you can’t get employee cards or other business-friendly perks, and you’ll need to be vigilant about using this card only for business purposes.
However, between the regular account reviews, no annual fee, and rewards, the Discover it Secured is one of the best bad credit options out there.
The Capital One Secured Mastercard makes our list of business credit cards for bad credit, because it’s a good option if you don’t have the cash to make a large security deposit upfront. With most secured cards, your security deposit has to match your credit limit. With Capital One, though, a deposit of $49, $99, or $200 (determined based on your creditworthiness) gets you a credit limit of $200. And as long as you make your payments on time every month, you’ll have access to a higher credit line after your first five months of card ownership.
Some other features of the Capital One Secured Mastercard include:
Again, this isn’t a business credit card, so you’ll need to take extra care to separate your business and personal finances. But if you’re looking to rebuild your credit but don’t have the capital for a large security deposit, the Capital One Secured Mastercard card might be your best option.
If you’re working with bad or no credit, but you still want the convenience of a business credit card, look to the Bento for Business Prepaid Mastercard. In fact, credit checks are not required to qualify for Bento, so you don’t need to worry about your credit score at all.
With features like prefunding employee cards, an easy-to-use app and dashboard, and automatic integration into your bookkeeping software, Bento makes it easy to control and track employee spending across as many cards as your business needs. To create your credit line, you’ll hook up your Bento card to your business bank account to easily transfer funds directly onto the card.
On the surface, secured credit cards and prepaid business cards look pretty similar. But here’s where they differ: Rather than paying a monthly bill to a credit card company as you would with a line of credit, when you use a prepaid card your expenses are deducted directly from your bank account. You won’t carry a balance from month to month, which means Bento can’t help you build your credit.
So, Bento is best used in tandem with a secured credit card. That way, you can build your credit score and take advantage of Bento’s features.
The Capital One Spark Classic for Business is the only dedicated business credit card on this list; it’s also the only unsecured business credit card on this list. That’s because, technically, this isn’t a business credit card for bad credit—it’s a business credit card for fair credit. But, at 550, you won’t find a lower minimum credit score required for card eligibility than this from a major, unsecured credit card issuer.
So, this card is best for small business owners with average credit, but who can’t yet qualify for the best cards on the market.
With this no-annual-fee card, you’ll earn unlimited 1% cash back on every purchase, and you can add additional employee cards at no extra cost. And since it is, in fact, a business credit card, your card activity will be reported to both the personal and business credit bureaus—that means a boost in both your personal and business credit scores, which only spells good things for your business’s financial future.
We keep saying how important it is to use your credit card responsibly. It’d probably help to know what “responsible” card usage means, then.
Here are a few best practices of credit card usage, regardless of whether that card is secured or unsecured. Follow these points to a T, and you should see your credit score improve.
1. Pay all your loan bills in full and on time.
That includes your credit cards, mortgage, car loans, student loans, small business loans… whatever debt you have on your books. If you have a hard time remembering to pay your balances, set up automatic payments with your card issuer. If that’s not possible, set a reminder in your online banking app or on your calendar so you don’t forget.
Just be aware that paying off your debts early might actually lower your score. Confusing, we know, but the bureaus view open and active accounts more positively than closed, inactive accounts—the former is a better indication of your current ability to manage debt.
2. Having debt is actually a good thing for your credit score, but only if it’s debt you can truly afford.
Paying late, or defaulting entirely, will seriously impact your credit score. Most negative credit behavior, like defaults, judgments, collections, foreclosures, and bankruptcy will stay on your report for 7 to 10 years.
3. Keep your credit utilization ratio low.
Ideally, you’re using less than 30% of your available balance every month. Credit bureaus associate a high credit utilization ratio with borrowers who default on payments, so your credit score will thank you if you pay attention to your debt-to-credit ratio.
4. Regularly check your credit reports for errors.
You’re entitled to one free credit report per year from all three of the major credit bureaus. If you catch any inaccuracies, report them to the bureaus ASAP.
And if you do opt for a secured business credit card, make sure that the card issuer actually report your credit activity to the personal credit bureaus—if your positive behavior goes unnoticed, then you can’t see your score improve!
These business credit cards for bad credit are great options for new business owners who need to build or rebuild, their credit histories—and/or who want to take advantage of the employee-management conveniences of a business credit card, but who don’t yet have the score to snag one.
To reiterate, here are our top picks for the best bad credit business credit cards:
Whether it’s secured or unsecured, be sure to use your business credit card for bad credit responsibly. By that, we mostly mean paying your bills in full and on time every month, being mindful about your card usage, only taking on the debt you can afford, and regularly checking up on your credit report for errors.
Keep in mind that aiding along your credit score won’t happen overnight, whether you’re repairing a recent blow or building it from scratch. According to Experian, it can take three to six months for the bureaus to calculate a first-time credit score; and how long it takes to rebuild your credit could take anywhere from months to years, depending upon how many demerits you have on your credit report right now.
Bottom line? Be patient. It’ll be worth it when you can qualify for the business credit card or small business loan your company really needs to grow.