Want a better credit score? Open a new account and use it responsibly

A reader recently asked whether it’s advisable to increase a poor credit score by becoming co-signers on a credit card owned by someone with a good score.

We asked our friends at Credit.com. They said: “Becoming an authorized user or co-signer on someone else’s credit card may or may not improve your credit score. What happens in these cases is that the account, which is paid for by someone else, might show up on your credit reports because of your association. This will only help your score if your score was low because of a lack of credit cards.”

Tying your credit rating to someone else has some serious downsides worth considering. For example, you might end up financially liable for that person’s debts. (Authorized users are generally not liable, while co-signers are.) That can result in bill collectors hounding you and your having to hire lawyers to fight them. Yuck.

If the other person suddenly stops paying their bills, your credit rating will suffer. And these days, it’s more important than ever to have a good credit rating, as everyone from potential employers to landlords to insurers has been known to inspect your record. Bad credit can cost you a lot more than you think.

Credit.com offers this as your best option: “Open an account on your own and use it responsibly each month. There are plenty of secured credit cards available that accept borrowers with poor credit. If you do not currently have a credit record, this is an excellent way to establish it. You could see your credit scores rise to the 600s or 700s, depending on how you manage the rest of your credit. If you already have credit and have issues such as late payments on your report, it will take longer for your credit to improve.

Remember, whenever something on your credit report changes, your scores will quickly take into account the new or different information. You won’t have to wait long to see if your actions have helped or hurt your scores.

Learn much more at www.fool.com/ccc.

Ask the Fool

Q: What’s a company’s market share? — B.W., Hartford, Conn.

A: The useful online glossary at www.investorwords.com provides a good definition: “The percentage of the total sales of a given type of product or service that are attributable to a given company.”

Consider rivals PepsiCo and Coca-Cola. According to Beverage Digest, Coca-Cola’s share of soft drinks domestically is around 43 percent, topping PepsiCo’s 32 percent. But when it comes to sports drinks, PepsiCo is king, with its Gatorade enjoying an 80 percent market share, vs. 17 percent for Coca-Cola’s Powerade. In cold juices, PepsiCo’s Tropicana brand has a 27 percent share, vs. 15 percent for Coke’s Minute Maid. In water, PepsiCo’s Aquafina’s share is 15 percent, vs. 10 percent for Coke’s Dasani.

This information can be very useful for investors researching the industry. It grows even more useful when you start looking at share trends over time. You can look up market share information by visiting www.google.com online and typing in, for example, “soft drink market share.”

Q: I’m considering opening an online brokerage account. If the brokerage goes bankrupt or closes, is my account protected? — H.L., Florence, S.C.

A: Most brokerages carry Securities Investor Protection Corp. (SIPC) insurance, protecting your account for up to $500,000, including up to $100,000 in cash claims. (Many brokerages carry additional insurance, too.) This doesn’t protect you against any loss in value of your holdings. Instead, it protects against the financial failure of broker-dealers. To make sure that a brokerage you’re considering is SIPC-protected, look closely at its Web site or call it up and ask.

Learn more about brokerages and how to choose a good one at www.broker.fool.com and more about the SIPC at www.sipc.org.

My smartest investment

In 1958, I took a new job and enrolled in the employee stock purchase plan. I retired in 1983 and received stock worth $140,000. In 1999, my former employer merged with another company and my roughly $860,000 in stock was replaced with $860,000 of the acquirer’s stock. My shares were recently worth close to $1.3 million. The dividends now total some $40,000 per year, and over the years, I’ve received about $430,000 in dividends. — R.F., Tulsa, Okla.

The Fool Responds: Not every employee stock purchase plan turns out like this one, but many serve their investors very well. You were smart to hang on for the long haul while the company remained healthy and growing — many fortunes are made when people sit still and don’t interfere too much with their portfolios. Still, if this holding represented the lion’s share of your investment portfolio, you were exposing yourself to a lot of risk. If something had suddenly gone wrong with the firm, your retirement wouldn’t have been so comfortable. Learn more about retiring well at www.fool.com/retirement.htm and by trying our retirement newsletter for free at www.RuleYourRetirement.com.