As others have said, you need to contact a mortgage officer and see what they can do for you and if they can help you improve your credit. Generally speaking, you need a credit score of a 620 around here to qualify for a mortgage. However, there are some programs that will work with buyers with a score that is lower. You need to check out your specific options.
As for the credit reports being wrong, you should contact the credit bureaus. If you have paperwork from creditors saying that you are all paid up, they should be able to correct your report for you. Make sure that you keep all of the necessary paperwork from any creditors so that you have proof that you are paid up, etc.