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Credit Card Applications » Questions » User Questions » Limited/Bad/Fair Credit » Why do Secured Credit Cards Require a Security Deposit?

Why do Secured Credit Cards Require a Security Deposit?

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First off let me say congratulations. The move towards a secure credit card means that you have had poor credit management in the past before, and you are attempting to reconcile your differences, and put your best foot forward for the credit card issuers. Well, now they’re asking for things that you might not have been expecting — like a security deposit. But don’t shun their request; there is a valuable reason as to why banks are charging you a security deposit and sometimes an upfront fee.

The security deposit is the banks best way of ensuring that you will not run off and not pay your credit card bill as you have done so in the past. So you can’t blame the banks for being protective of their money, as you are one of the most high risk clients. By putting a security deposit upfront that is equal to your credit card limit, the banks know that even if you don’t pay up, they still have that money.

The security deposit is good for the bad credit consumer, because it makes them committed to paying off and maintaining that credit card. If they continue to pay off their credit card on time and avoid all late fees and penalty payments then they will receive the security deposit back and a bump in their credit score. It’s a win-win situation for the cardholder.

A secured credit card can be used for all purchases that an unsecured credit card can, and gives the bad credit consumer a glimpse of what it feels like to use a credit card. If you have bad credit, make sure that the credit card issuer will report your payment history on the card to the major credit reporting agencies. Because if you continue to keep up a good payment history and the data is not recorded, it’s just a waste of time, and it will have no affect on your credit score.

So when you put the money up for a security deposit, make sure that the information will be reported. Also, beware of sign-up fees and annual fees on secure credit cards, as you can find a quality card that doesn’t charge excessive fees. After you put up your security deposit, it may take up to a month for your credit card to get approved, so set a credit limit that you are comfortable being without for a month.

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