A curious reader recently wrote in to the CardRatings.com Ask the Expert feature to ask: "Are some states better than others when using a credit card?"

Geoff WilliamsGeoff Williams responds:

Interesting question and kind of open-ended, so I'm not quite sure how to answer it for you, but let me give it a whirl. Do you mean is it better to use a credit card in Indiana than in, say, Oregon?

State of purchase

If that's what you meant, it really comes down to saving money on taxes and reducing any revolving debt. A handful of states, like Oregon, don't have a sales tax. So for example if you're going to use a rewards credit card extensively on a vacation, and you know you'll carry the balance for a while, I guess it's better to use it in Oregon, which will have no sales tax on hotels and souvenirs, than in Indiana, which has a state sales tax of 7 percent. (I'm not intending to pick on Indiana; I graduated from Indiana University and consider it a terrific place to live and visit.)

State of residence

If you're talking about where you live, as in, is it better to be living in Massachusetts than Mississippi when you apply for, say, a gas credit card? For the most part, no, there is no geographic advantage, provided we're comparing people with similar credit histories and scores. But credit card companies do sometimes look at whether people have been making too many purchases at thrift stores (a sign of financial stress?), or using their plastic to pay for marriage counseling (a sign that a divorce may be coming, which can lead to financial woe) or traffic tickets, which can be a sign, to a lender, of irresponsibility. So I suppose it's conceivable that economic conditions in your area could influence the best credit card deal you'll be offered. But again, I'm just speculating.

Many states require minor variations in the credit card's "terms of use" statement specific to that state. For example, if you live in New York or Vermont, you have the right to request that your credit card issuer inform you that it has obtained your credit report. I suppose if that right is extremely important to you, yes, it's better to apply for a credit card while living in New York or Vermont. But for the most part, no, when it comes to your credit card, all states are pretty much the same.

State of issuance

Ironically, it isn't where you live that affects your credit card so much as where your credit card issuer lives. The credit cards with the highest interest rates tend to be based in states with the loosest lending laws, so if your company is based in South Dakota, for instance, don't be surprised if your card has an exorbitant interest rate.

Just for fun, you might want to check out CardRatings' recent rankings of best and worst states for credit. While unofficial, the rankings give you a general idea of credit conditions state by state. How does your state rank?


Joe TaylorJoe Taylor weighs in:

That's a great question. My wife and I have moved around the country quite a bit because of our careers, so it's a topic I've learned a lot about along the way. Although credit card issuers must operate under a stringent set of federal guidelines, local laws and regulations can change the way you interact with your bank.

In many cases, banks operate to meet the needs of the lowest common denominator: the state with the toughest rules. Sometimes, if a lender won't meet state guidelines because of a perceived risk to their business, they just won't operate within state boundaries.

Consumer protection laws

Some states, like New York and California, take consumer protection very seriously. Their laws give cardholders such power that merchants will often process refunds or returns outside their usual guidelines, just to avoid the hassle. However, not all states follow such strict standards. Problems with credit cards ranked second in the Consumer Federation of America's 2010 survey of unsolved complaints to state consumer protection agencies.

Community property rules

Most of us rarely think about community property outside the context of divorce, but the same rules that govern how you split your assets also determine who's responsible for paying household debt. In Arizona, California, Idaho, Nevada, New Mexico, Texas, Louisiana, Wisconsin, and Washington, you're responsible for paying off a spouse's credit card, even if you didn't know he or she opened one. These rules cross state lines when couples separate, so a collector can come after you if your spouse lives in a community property state and you don't.

Statutes of limitations on old debts

Every state sets a different statute of limitation on credit card debt. That's the length of time that has to pass from the date of your last payment before a creditor can no longer legally collect on an account. Wyoming and Rhode Island have some of the longest terms (up to 10 years), while residents of the District of Columbia, Maryland, and California enjoy the country's shortest terms (as few as 3 three years).

Collections and garnishments

State courts take different approaches to handling collections activity, especially lawsuits that attempt to claim personal property on behalf of a lender. Four states (North Carolina, Pennsylvania, South Carolina, and Texas) refuse to allow debt collectors or original creditors to garnish wages for unpaid credit card bills. In fact, Pennsylvania takes one of the firmest pro-consumer stances regarding defaulted credit card debt: even the original creditor must abide by the terms of federal rules that usually only apply to third-party collection agencies.

State credit card laws vary widely, so this is a topic we may explore further in a feature article on CardRatings.com. However, you can usually find easy answers to your questions about a state's rules by searching online for their Department of State, their Attorney General, or their Department of Finance. You can find an online index of state consumer protection agencies maintained by the U.S. Government's official web portal at: http://www.usa.gov/directory/stateconsumer/index.shtml


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