diff --git a/README.txt b/README.txt
--- a/README.txt
+++ b/README.txt
@@ -27,9 +27,8 @@ invalid, or because it was changed on th
 prompts the user again.
 
 Passwords are identified by the combination of username and remote
-repository url (for HTTP) or username and smtp server address (for
-SMTP), so they can be reused between repositories if they access
-the same remote repository.
+address, so they can be reused between repositories if they access the
+same remote repository (or the same SMTP server).
 
 Installation
 ============
@@ -114,6 +113,11 @@ Simpler form with url-embedded name can 
     [paths]
     bitbucket = https://User@bitbucket.org/User/project_name/
 
+If prefix is specified, it is used to identify the password (so all
+repositories with the same prefix and the same username will share the
+same password).  Otherwise full repository URL is used for this
+purpose.
+
 Note: if both username and password are given in ``.hg/hgrc``,
 extension will use them without using the password database. If
 username is not given, extension will prompt for credentials every
@@ -147,11 +151,12 @@ Usage
 
 Configure the repository as above, then just ``hg pull``, ``hg push``,
 etc.  You should be asked for the password only once (per every
-username+remote_repository_url combination).
+username and remote repository prefix or url combination).
+
 
 Similarly, for email, configure as above and just ``hg email``.
-Again, you will be asked for the password once (per every
-username+email_server_name+email_server_port).
+Again, you will be asked for the password once (per every username and
+email server address combination).
 
 Implementation details
 ======================
diff --git a/mercurial_keyring.py b/mercurial_keyring.py
--- a/mercurial_keyring.py
+++ b/mercurial_keyring.py
@@ -22,6 +22,7 @@ import keyring
 from urlparse import urlparse
 import urllib2
 import smtplib, socket
+import os
 
 KEYRING_SERVICE = "Mercurial"
 
@@ -110,8 +111,9 @@ class HTTPPasswordHandler(object):
             self.last_reply = dict(realm=realm,authuri=authuri,user=user)
             return user, pwd
 
-        # Loading username and maybe password and prefix URL from [auth] in .hg/hgrc
-        nuser, pwd, prefix_url = self.load_hgrc_auth(ui, base_url)
+        # Loading .hg/hgrc [auth] section contents. If prefix is given, 
+        # it will be used as a key to lookup password in the keyring.
+        auth_user, pwd, prefix_url = self.load_hgrc_auth(ui, base_url)
         if prefix_url:
             keyring_url = prefix_url
         else:
@@ -129,10 +131,10 @@ class HTTPPasswordHandler(object):
                 self.last_reply = dict(realm=realm,authuri=authuri,user=user)
                 return user, pwd
 
-        if nuser:
+        if auth_user:
             if user:
-                raise util.Abort(_('mercurial_keyring: username for %s specified both in repository path (%s) and in .hg/hgrc/[auth] (%s). Please, leave only one of those' % (base_url, user, nuser)))
-            user = nuser
+                raise util.Abort(_('mercurial_keyring: username for %s specified both in repository path (%s) and in .hg/hgrc/[auth] (%s). Please, leave only one of those' % (base_url, user, auth_user)))
+            user = auth_user
             if pwd:
                 self.pwd_cache[cache_key] = user, pwd
                 self._debug_reply(ui, _("Auth data set in .hg/hgrc"), 
@@ -186,8 +188,10 @@ class HTTPPasswordHandler(object):
 
     def load_hgrc_auth(self, ui, base_url):
         """
-        Loading username and possibly password from [auth] in local
-        repo .hgrc
+        Loading [auth] section contents from local .hgrc
+
+        Returns (username, password, prefix) tuple (every
+        element can be None)
         """
         # Theoretically 3 lines below should do:
         
@@ -204,7 +208,6 @@ class HTTPPasswordHandler(object):
         repo_root = ui.config("bundle", "mainreporoot")
 
         from mercurial.ui import ui as _ui
-        import os
         local_ui = _ui(ui)
         if repo_root:
             local_ui.readconfig(os.path.join(repo_root, ".hg", "hgrc"))
@@ -217,7 +220,7 @@ class HTTPPasswordHandler(object):
             shortest_url = self.shortest_url(base_url, prefix)
             return username, password, shortest_url
 
-        return None, None
+        return None, None, None
 
     def shortest_url(self, base_url, prefix):
         if not prefix or prefix == '*':