I have been trying to keep things as much a mystery as possible during the game. One question i had was if a Creature has not been encountered yet but receives damage (either from the asset card or the character that can give damage as an action) how do you handle that?

What we have been doing is pile the damage counters on it and when we encounter it we flip it and if it has enough damage on it it's immediately dead. The only trouble there is that makes it difficult to plan for what could be a dead monster. Just looking for thoughts.

Well, first of all, by the rules, you are allowed to look at the back of a monster token at any time. The topic "Hidden Information" in the Reference Guide, says as much. That said, understanding you are playing with a minor groovy variant, the way you have been doing it is probably appropriate; occasionally running up on a monster to discover it's already dead is just a logical consequence and not entirely at odds with the theme.

I like the idea behind your approach, but there is a potential practical problem that you're making for yourself: if you don't return the low Toughness Monsters to the bag, you'll be left with high Toughness ones in the bag to draw. Frequently killing weak monsters helps keep the tough ones at bay. Besides, after half a dozen plays you'll know which ones are tough and which ones aren't.

The funny part about that is it was a bigger monster that it happened with. one of the investigators used their ability to damage the creature and another used an item to damage it. we just did not want to spoil what the monster had until we encountered it.

almost like the two guys were fighting it and lobbed some heavy artillery to kill this huge monster. after the first attacked the second guy says "is it dead?" the first guy shrugs and so the second guy tosses in a molitov hoping to finish it off. then they turn on the flash lights and head inside to find out if they killed it...