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Should You Give Your ZIP?

Think twice. Those five little numbers could open the door to junk mail or ID theft

En español | What's your ZIP code?"

Chances are you're asked that question a lot when you take out your credit card at a store.

Even though it may seem harmless, you might want to hold back those five little digits. Providing them can result in more junk mail and, according to some security experts, put you at higher risk of identity theft.

See also: Fraud alert or credit freeze to fight identity theft?

Many merchants request zip codes that may be used for market research but can also generate unwanted junk mail

Giving a cashier your ZIP code could open your door to junk mail. — Photo by Noa/Getty Images; Getty Images

That's because your ZIP code can be the key to your address. "Merchants can use computer software to run a reverse search in databases that contain millions of names and related information like ZIP codes," says Beverly Blair Harzog, a consumer advocate and credit expert with Credit.com.

That's what happened in California, where retailer Williams-Sonoma was found to be using customer names and ZIP codes to figure out addresses, which the store then added to its mailing lists.

Todd G. Friedland, an attorney in Newport Beach, Calif., referred to the opinion of the court, Williams –Sonoma used this information to market products to customers and possibly sold the information it had compiled to other retailers and marketing associations.

Along with leading to your address, your ZIP code also can be valuable information for someone trying to impersonate you. "There have been many retailer security breaches, and if a retailer's database contains your credit card number and ZIP code, that increases your chances of identity theft," says Friedland.

Anti-ZIP law in California

That's one reason why the California Supreme Court ruled in February that collecting ZIP codes by merchants in California violates consumers' right to privacy. Merchants in the state are now not allowed to ask at the register for customers' codes.

The financial industry disagrees with the controls. Trolling for ZIP codes does not harm consumers and is a vital tool in planning marketing strategies, says Tim Horton, vice president at First Data, an electronic commerce and payment-processing company.

"Merchants rely on gathering consumers' ZIP codes to determine where to advertise and where they should consider opening another location," he says.

For example, he says, a merchant who notices that a large number of customers are traveling from a specific area may consider opening another location there or advertising and including coupons in that area's local newspapers.

In addition, "merchants request ZIP codes to collect information that can enhance customer relationships through loyalty programs that offer various discounts, promotions and rewards," says Horton.

Next: Retailers get incentives for customer ZIP codes. >>

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