Credit cards are a notoriously expensive way to borrow. The potential costs are even greater for those who struggle with debt, have a weak credit score, and hold a credit builder card, due to higher than average APRs of 30%, 40% or more on cards for bad credit.

While credit card companies may benefit financially from your paying high interest charges each month for your borrowing, you are far better off by paying down the full balance each month. Understanding why it matters to only charge a credit builder card what can be repaid in full by the due date can help you manage the balance to your advantage. Here's a look at the potential costs of carrying a balance on a credit builder card.

Interest Payments

Since interest rates are higher on credit builder cards, carrying a balance means paying more in interest. The average variable APR on credit cards for bad credit is around 36% - around 50% more than the average credit card APR, and around three to four times what someone with a strong credit history might pay on a low-rate card. This can have a significant effect on personal finances, especially for anyone working to improve their financial situation.

Paying the full balance by each due date avoids interest charges entirely. To illustrate how much this can matter, consider a £1,000 purchase made on a card with different APRs and a £5 minimum payment floor, where only the minimum payment is made each month. A cardholder on a high-interest card can end up paying two, three, or more times their original purchase amount in interest.

Total Interest Charges on £1,000 of Purchases: Cardholder makes Minimum Monthly Payments Only

Paying back the full balance each month, rather than only the minimum, avoids these charges. For every £1,000 of purchases, this can mean avoiding £2,000, £3,000, or more in interest, depending on the APR.

The Difference £20 a Month Can Make

Paying more than the minimum, even by a modest amount, can still make a meaningful difference. For example, paying an extra £20 a month on a 39% APR card could substantially reduce total interest paid over time — the exact saving depends on the specific terms of the card.

Much of this saving comes from avoiding the effect of the Minimum Payment Floor through a larger monthly payment.

Credit Score

Carrying a balance from month to month on a credit card, especially if you are near the limit and on a high-interest card, can affect a credit rating. Persistently carrying debt can be seen by lenders as an indication of difficulty managing existing borrowing, which can make it harder to access credit in future, or at a favourable interest rate.

Can't You Switch to a Balance Transfer Card?

If a balance builds up on a credit builder card, moving it to a 0% balance transfer card can seem like an obvious next step. This can be more difficult than it sounds: those with a weaker credit score may find it harder to qualify for a 0% balance transfer card, though some options may still be accessible. It's worth checking individual card terms.

A weaker credit history represents a higher potential risk to a lender, which is generally why a 0% balance transfer deal isn't guaranteed to be available.

What to Do

For some people, using a credit card carefully and repaying on time may help build credit history, but outcomes vary and eligibility is lender-dependent.

For those who have been declined for a standard credit card, credit cards for bad credit are designed for people with poor or limited credit history, and may have more accessible eligibility criteria. But they typically come with higher interest rates and lower credit limits.

Credit builder cards can be extremely costly if a balance is carried from month to month. If you find yourself struggling to pay back outstanding debt, free debt advice is available from organisations including National Debtline, Citizens Advice Bureau and StepChange Debt Charity.