What type of credit requires a deposit to secure borrowing?

A secured credit card is the correct answer because it is specifically designed for individuals who may have limited credit histories or lower credit scores. In this arrangement, the cardholder is required to make a deposit that acts as collateral. This deposit serves to limit the lender's risk. The credit limit on the card is typically set at the amount of the deposit, which can be seen as a form of pre-paid borrowing. If the cardholder fails to make payments, the lender has the right to use the deposit to cover the unpaid debt.

This type of credit can help consumers build or improve their credit scores, as it allows for responsible borrowing and repayment habits to be reported to credit bureaus. Other types of credit, such as a home equity line of credit or an unsecured loan, do not require a deposit for borrowing. A utility payment plan is also not considered a type of credit but rather an arrangement for managing utility payments, further distinguishing secured credit cards in their operational structure and purpose.