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US consumers broke through quite a barrier earlier this year, when total credit card debt topped $1 trillion for the first time since the Great Recession. Then in June, total credit card debt reached $1.021 trillion, besting the previous record set back in April 2008, just as the Great Recession began.

There’s a natural impulse to see this as a bad sign: the last time credit card debt hit $1 trillion, things didn’t end so well. High revolving-debt levels can be an indication that consumers are struggling to make ends meet or that their incomes aren’t keeping up with expenses. It can also indicate that lenders are giving away credit too easily.

Or, it might mean that economic activity is increasing and consumers are optimistic about the future.

Underlying data suggest a bit of both. Read on to learn more about the good and bad, as well as where there may be reason for concern.

The Good: Responsible Consumers Are Building Credit

The credit card debt record isn’t a surprise to people who have been following the industry. In May, TransUnion revealed that access to credit cards had reached its highest level since 2005: a total of 171 million consumers had access to a card, the credit bureau said. Meanwhile, credit limits for the best credit card customers—those with particularly high (or super-prime) credit scores—have also risen quickly; the average total credit line for super-prime consumers rose from $29,176 in 2010 to $33,371 earlier this year. More cards and higher credit limits lead to more spending and more borrowing—and the new debt record.

“The card market went through a transformation after the recession as more lenders opened up access to subprime and near-prime consumers. The competition for super-prime consumers has become fierce, and we are seeing it manifest in higher total credit lines,” said Paul Siegfried, senior vice president and credit card business leader for TransUnion.

The American Bankers Association (ABA) released similar data in late July. It found that the number of new accounts had increased by 8.8% in Q1 compared with the same period the previous year.

“A stronger labor market continues to serve as a bright spot in the US economy, putting more Americans in a better position to establish and build credit,” according to Executive Director of ABA’s Card Policy Council Jess Sharp.

More consumers with access to more credit is generally a good thing. It’s hard to be a US consumer—to rent a car, to book a hotel, and so on—without access to credit cards.

But within these reports lurk some ominous signs.

The Bad: Subprime Card Holder Numbers Are Growing Fast

Subprime credit consumers are the fastest-growing segment of the credit card market, TransUnion found. There are now 2.3 million more subprime credit card holders than there were in early 2015. The growth rate for subprime card holders was 8.9%—much higher than the 2.6% rate of all other consumers. And the ABA found that the average size of initial credit lines being granted to new subprime borrowers was growing at a faster rate than all other categories.

In other words, the increase in card debt might be the result of this fast-growing subprime borrower market.

Credit card delinquency rates are also growing—from 1.50% in 2016’s first quarter to 1.69% in 2017’s first quarter. TransUnion attributes this to the increase in subprime card users but also notes that it wasn’t unexpected.

“The recent surge in subprime cards has contributed to an increase in the card delinquency rate at the start of the year, but from a pre-recession, historical perspective, we are still at low levels of delinquency,” Siegfried said.

That was little comfort to investors earlier this year, when both Discover and Capital One announced a surprise increase in defaults. Shares of both fell about 3% in one day on “here we go again” fears.

The Larger Context: Credit Debt Doesn’t Exist in a Vacuum

All this is happening with the backdrop of recent concerns about the suddenly slumping auto sales market. A huge increase in subprime car loans helped fuel record auto sales in the past several years, but rising delinquencies have contributed to an alarming slowdown in overall auto sales—and loose comparisons to the subprime mortgage bubble that fueled the Great Recession.

However, it’s far too early to suggest that subprime credit card lending is a sign of trouble, let alone big trouble. Credit card debt is easy to misinterpret because those numbers are meaningless without context. A consumer who charges $6,000 and pays that balance off each month is much better off than one who charges $1,500 and struggles to make minimum payments.

It’s important to remember that the majority of Americans don’t carry a credit card balance from month to month. The ABA says 28.8% of account holders pay their balance in full each month (the so-called “transactors” in the image below), and another 27.2% don’t use their cards at all. The remaining category is the one to watch: the “revolvers,” who carry a balance and often pay high rates. Currently, 44% of card holders carry a balance each month. Their ranks rose 0.3% in the most recently reported quarter, while the share of transactors fell by 0.3%.

So that’s a number to watch—much more important than average balances or total credit card debt. If more people can’t pay their whole credit card bill every month, there’s a real problem brewing. And while that group has increased slightly, it’s still below the recession peak.

Perhaps the most positive finding from the ABA report is that outstanding credit card debt as a share of consumer disposable income isn’t climbing. In fact, it fell by a small fraction, to 5.3%. That’s a good indicator that consumers aren’t struggling to pay their credit card bills or increasing their plastic spending at a rate faster than their incomes are growing.

Protect Yourself from Whatever the Market May Hold

So the new record credit card debt is truly a mixed signal. With subprime lending and defaults up, auto loans in a bit of trouble, and some investors worried, this milestone is a good time to pause and evaluate whether America is once again heading down the road of too-easy credit followed by recession. But by itself, $1.02 trillion is just a number, and it might not indicate anything.

Either way, it’s a good idea to stay on top of your credit report—which you can check for free at Credit.com—to ensure you’re in a good place, regardless of what the coming years might bring.

Image: istock

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