Consumers who use secured credit cards are typically those who have a bad credit score and need this secured line of credit as a way to begin rebuilding a bad credit history. While it’s not easy to repair a bad credit score with a secured credit card, both consumers and businesses have used this type of card as a way to put themselves in a better financial position after taking a hit to their credit score and history for one reason or another.
However, businesses may also access secured credit cards as a way to simply establish a credit history. Lately, many small businesses have complained that access to credit has been quite tight and, as a result, companies have been unable to access the credit they need to make their business more prosperous.
Lenders have been very concerned over the ability of small businesses to repay debts, like small business loans are even lines of credit to businesses, but some companies have been able to use secured credit cards as a way to establish a good credit history for their small business, which can open up other borrowing opportunities in the future.
While secured credit cards do require that a business owner, or consumer for that matter, put up some form of collateral, this secured credit card has been helpful simply when it comes to establishing a credit history. Obviously, since a consumer or business owner who is using a secured credit card to build a credit history will need to have access to capital or collateral which can be used for this type of card, many argue that secured credit cards are not helpful since the collateral for this line of credit could be used in other ways.
As an example, some argue that a business owner who opens up a secured line of credit through this type of card and deposits money into an account that secures the lender against loss may be better off simply using that money for other purposes. However, if a business owner has cash on hand but a poor credit history, using their cash or the collateral that could be used for a secured credit card will obviously not help a company with no credit history establish themselves as a safe credit risk.
It should be known though, secured credit cards are no guarantee to a better credit history, but may only be helpful to small businesses who are looking to establish a credit history who can also practice smart spending and repayment habits. Business owners who acquire a secured credit card for their company must make repayments on their credit card charges, or money from the secured account which backs their card may be taken and their credit history could be damaged if payments are missed.