First, you need a copy of your credit reports from all 3 agencies. You can now do this for free (once per year) at http://www.annualcreditreport.com. Review each report that you receive and find your derogatory credit items.

If you have a single late payment with a creditor that you have a long-standing good history with, you should call them first. Your tone with them should be one of remorse. Explain to them that it was a one-time error on your part and that you just slipped up and forgot to pay the bill. Explain that your relationship with them is important and that you have always paid on time and plan to do so in the future. Ask nicely if they will give you a letter which indicates that this late payment was reported in error. If you can get this letter, then you can send it in to the credit bureaus as outlined above and have the late payment forever removed from your report.

If you have legitimate collections on there, it is likely that many of the items are reported twice - first by the company that you owe the debt to and one by the collection agency that they hired to try to recover their debt. The exception to this is a medical collection. By law, the medical facility cannot report the debt, only the collection agency they hire. If this debt in collections is an unsecured debt (basically anything other than an auto, mortgage, boat, etc.) then your chances of negotiating a deal which benefits you and your credit score is excellent. Also, the older the debt is, generally the easier it is to negotiate as the creditor has probably already written it off as uncollectable. Anything they can get at this point is a bonus.

Now, before you get going, you need to understand your goals. With collection agencies, the goal is to get the agency completely removed from your credit report. Having collections on the report is bad even if the account is listed as paid in full. With the original creditor, your goal is to have the debt listed as either of these: "Paid as Agreed" or "Account Closed - Paid as Agreed" Anything other than this will have a negative impact on your credit score.

The thing you have working in your favor is the fact that your creditors make their money by collecting debts, not by ruining your credit. Therefore, if you give them what they want - money, you can often get what you are seeking - a clean credit report. Always talk to your creditors in terms of them getting their money. If you owe more than you can afford to pay them, you can even attempt to strong arm somewhat by saying something along the lines of: "I know you would love to receive the $3,000 I owe you, but it will not help my credit report if you can't change my rating to 'Paid as Agreed'. All I have is $3,000 and I will pay it to other creditors who will agree to change my credit rating in writing."

You should first start with the collection agencies listed on the credit report(s). Call them, reference your account, and begin the negotiation. Again your goal with the collection agency is to get their information completely deleted from your report as well as to get the original creditor account marked as "Paid as agreed." Explain that if they are able to put in writing that both of these things will happen, then you will pay either the entire debt or whatever it is you are trying to negotiate with them. They will likely tell you that they have no control over what the original creditor will do, and this is true to some extent. However, they were hired by the original creditor and they should be able to get in touch with that creditor to obtain the necessary paperwork. When all is said and done, you want to get two letters: one from the collection agency saying they will remove the collection completely from your report and one from the creditor saying that they will mark your account as "Paid as Agreed". Once you have this in writing, you can send in your payment.

Many creditors will tell you that they have agreements with the bureaus that they will not allow a negative listing to be deleted upon settlement. While this is true, the creditor can report your account as having been rated inaccurately. The larger the creditor you are dealing with, the harder it will probably be to get the negative information removed, but in nearly all cases you can get them to work with you with enough persuasion.

Rules for making payments
1. Send payment in the form of a money order obtained from the post office. Sending a personal check or anything from your bank only invites the collector to find out about your personal finances though account numbers, etc.
2. Make a copy of the money order before sending it. Collection agencies keep notoriously bad records and it's your word against them.
3. Send ALL correspondence (including your payment) via certified mail.