Credit card debt jumps 9%. Bad sign? Depends on your credit score

The average debt on U.S. credit cards has climbed 9 percent in two years after a big pullback following the financial crisis nearly a decade ago, a new federal report says. Total revolving debt has increased very close to pre-recession levels of about $1 trillion.

Slouching toward a new debt crisis? Depends on where you fall in the great credit-score dividing line around 720. If you’re above it, on a typical industry scale that runs up to 850, a close look shows not all of the increased charging likely means “new” debt.

Why? People with good credit scores are increasingly likely to put more things on plastic that they would pay anyway, like routine shopping formerly paid by cash or check or monthly charges for utilities, consumer services, and so on. That’s because it’s a golden age for credit card rewards, and those with the good fortune and discipline to pay it off monthly can come out ahead.

Average credit balances topped $4,800 by the end of 2016, a high since the last recession, according to the Consumer Financial Protection Bureau.

But that does not mean all of it is “new” spending, CFPB figured.

“This high is driven in substantial part by an increase in the average debt level of consumers with superprime credit scores,” meaning 720 or above, the CFPB report released Wednesday said. “Given that these consumers are very likely to transact on their credit cards, this likely represents less a shift in consumer indebtedness patterns than in purchase behavior.”

For example, the report said, “consumers who cease making purchases with cash or check, instead migrating their purchase volume to a credit card that they pay off in full each month, may double their average monthly credit card balance without actually altering their personal balance sheet meaningfully.”

Consumers with “prime” scores, 660 to 719, actually carry the most credit card debt, more than $8,000 per cardholder in the four most recent quarters.

But they pay a steep price if they don’t pay off balances each month. At a typical 19% interest rate, they pay about $127 in interest charges each month.

In contrast, the “superprime” cardholders hover around $4,000 in debt (that they often pay off each month) and folks with “deep subprime” scores, 579 or less, average less debt, about $2,700.

Delinquency and charge-off rates are ticking upward slightly, even with the unemployment rate low and no obvious signs of problems in the larger economy.

“Total outstanding credit card debt has continued to grow since our last report and is now at pre-recession levels,” the report notes.

Whether that’s a problem seems to be a tale of two pools of credit scores.

For folks with scores above 720 — about 56 percent of the scored population, according to this report — the growing debt isn’t necessarily a worry and may not even represent new debt, but a shift in how they pay for things.

Those with “prime” or lower scores, however, run the greatest risk of paying sky-high interest charges and sinking into trouble when debt loads rise.

Credit score tiers

Group/Share of U.S. population with a credit score

Superprime (scores of 720 or greater) 56%
Prime (660 to 719) 17%
Near-prime (620 to 659) 9%
Subprime (580 to 619) 7%
Deep subprime (579 or less) 11%

Source: Consumer Financial Protection Bureau