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, so 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 charge as much as you can afford to payoff 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 report your regular, on-time payments to the three major credit reporting companies, which improves your credit history and the credit scores calculated from that history.
• Have you credit card 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. A 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.

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. And of course you'll 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
• 8.9% interest rate on purchases
• $30 charge for late payment or going over your credit limit
• 8.9% interest rate on cash advances
• No cash advance fee

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
• $20 charge for late payment or going over your credit limit
• 12.9% interest rate on cash advances
• $3 cash advance fee

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

Click here, enter your zip code and check out the credit unions in your community. 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, then our next choice would be to apply for an Orchard Bank secured credit card.

Its fees are higher, but still reasonable:

• No application fee
• $35 annual fee
• $35 fee for late payments

• $30 fee for going over your credit limit
• 15.4% interest rate on purchases
• 25.15% interest rate on cash advances
• 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.
• First Premier Bank, which charges a $29 set-up fee, $95 program fee, $48 annual fee and $6 a month participation fee.

Add it all up and you'll be spending around $250 to carry their card.

You can do better.

By Carolyn Siegel

Interest.com Associate Editor

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