We know where to go for the best deals on secured credit cards -- and so should you.

These credit cards require you to pay first and charge later. They're designed for consumers with little or no credit history -- or a terrible credit history -- who can't qualify for a standard credit card.

But with some secured cards imposing $99.95 "processing fees" and other outrageous costs, finding the right one can literally save you hundreds of dollars a year.

Here's how a secured card works and how you should use it:

• You deposit up to $500 with the card issuer. That will be your credit limit. Most banks pay interest on this deposit, as if it were a savings account.
• You'll get a credit card that allows you to charge between 50% and 100% of that amount. Most of them let you use all of your deposit. You can use the secured card just like a regular credit card. There's nothing that says "secured" on it.
• Just like regular credit cards, you don't have to pay the entire bill every month. You can carry a balance and pay interest on it, as long as you make a minimum monthly payment and the balance doesn't exceed your credit limit -- the amount you have on deposit with the card.

But a better idea is only to charge as much as you can afford to pay off each month. Regular, on-time payments are critical to establishing good credit. Demonstrating that you can use a card without running up any debt helps, too.

Your goal is to:

• Have your secured credit card issuer report your regular, on-time payments to the three major credit reporting companies. This will improve your credit history and the credit scores calculated from that history.
• Have your credit card issuer increase your credit limit without requiring a larger deposit.
• Qualify for a regular credit card that isn't secured with a deposit within a year or so.

Getting to that point will be much easier if you start with a secured credit card that doesn't stretch your budget with excessive fees. And remember, fees are the critical factor.

A secured credit card won't let you carry a big balance like so many regular credit card customers do.

Even if you carry a balance of $200 at a rather steep 20% annual interest rate, you'll still pay only $3.32 a month. You pay no interest if you follow our advice and pay the entire bill each month.

So watch out for secured cards that promote low interest rates, but charge hundreds of dollars to open or maintain an account.

In fact, Linda Sherry, the director of national priorities at Consumer Action in Washington, says, "Don't pay application fees at all."

That's why you should start your search for a secured credit card at a local credit union.

Here are a couple of examples of how good the deals can be.

Digital Federal Credit Union is the largest in New England, with members from a broad range of companies and organizations. It offers:

• No application fee
• No annual fee
• As low as an 8.25% interest rate on purchases
• $30 charge for late payment or going over your credit limit
• No ATM or cash advance transaction fees

GTE Federal Credit Union was originally created for GTE employees. It now serves workers at more than 1,300 companies in western Florida and parts of New Orleans. It offers:

• No application fee
• No annual fee
• 12.9% interest rate on purchases
• Minimum $500 pledge amount
• 12.9% interest rate on cash advances

If you don't belong to a credit union, you may be able to join one.

You can find a credit union in your community by simply entering your zip code. Many have liberal membership requirements and most offer a wide range of financial services including auto loans, savings accounts and certificates of deposits, home loans and checking, at better-than-average rates.

If you can't qualify at a credit union, our next choice would be to apply for an Orchard Bank secured credit card.

Its fees are higher, but still reasonable:

• $200 minimum deposit
• $35 annual fee, waived the first year
• $35 fee for late payments
• $30 fee for going over your credit limit
• 7.9% interest rate or more on purchases
• 5% fee on cash advances ($5 minimum)

The bottom line: If you pay your balance off each month, and don't rack up a bunch of penalties, it will only cost you $35 to get and carry this card for a year.

Compare that with the kind of secured credit card deal we think you should avoid:

• The New Millennium Platinum card, which charges a $99.95 processing fee, $95 program fee and $59 annual fee -- and a 19.5% APR.
• First Premier Bank, which charges a $29 set-up fee, $95 program fee, $48 annual fee, and a $7 a month participation fee.

Granted, set-up fees and program fees are one-time charges. But add it all up and with First Premier Bank you'd spend around $250 to carry their card the first year, and $132 every year thereafter.

You can do better.

By Carolyn Siegel

Interest.com Associate Editor

Have questions about your finances? Ask us at editors@interest.com