Honestly you have to ask yourself: Do you want to pay off old debt or do you want a higher credit score? They don’t always mean the same thing. If you only want to improve your credit rating, you can get away without paying a lot of collection items.
If you only want a better credit score to get a home loan, first thing you should do is talk to whoever will be your lender. Find out which credit bureau they will use. Most use the major three, but occasionally a lender will only use two.
Then get a copy of the credit reports they will be referencing. Have them tell you specifically what is holding you back. Make those your priority.
First thing to do(this is if you are only interested in the credit score and not the repayment obligation) is to dispute all your negative markings. The three major credit bureaus allow you to do this easily online. It can also be done by mail. The credit and collection companies have 30 days to verify your dispute. If the credit bureaus do not receive a response in 30 days, the negative marking is removed from your report. If they respond in the alloted time, the negative mark remains.
Now, keep in mind, the collection company may only respond to one or two of the credit bureaus and not the others. Then you will have the negative mark on only the reports they responded to.
If you got any negative marks removed, good, you have improved your credit score. Now try it again for the following month with whatever remaining marks you have. Try this for each month for 3-6 months. Some companies will get tired of verifying each month, some companies may let it slip through the cracks one month. Either way, you may eventually get a few negative marks removed and improve your score some.
Next is to contact any company that has you marked negative on the credit report. Negotiate with them. Tell them the truth and ask what you can do for them to remove the negative information. Some collection companies will ask for an upfront amount to settle the debt and may even remove the item from your credit report entirely. If you have a credit account still open and you have kept up with it since, they may be more willing to work with you.
Try and negotiate to get the negative mark removed all together. However some may only mark you as paid in full, but keep the collection info on your report.
Anything you have left negative on your report you have to make a decision. How soon do you want a house and will the negative info be gone before you need the home loan. A lot of collection accounts are only kept on your report for 5 years, but may be there for seven. Most everything else is there for 7 years, except bankruptcies and judgements, which are ten years, and some tax liens and child support liens, which may be up to 15 years(I think).
If you need 18 months to save up for a home loan and down payment, you may want to just wait the extra six months if you have negative items coming off in 2 years. Check your credit report for things past the five and seven year deadline, too, sometimes they forget to take things off.
One thing that is key, that should be common sense, is to make sure you keep and credit you currently have up to date and paid on time.
Also, like nephorm said, just because you got things removed from your credit report, doesn’t mean you don’t legally owe it anymore. Be aware of that. However, their level of pursuit is going to depend on your level of debt. A collection company is going to let a $1200 debt slip through the cracks and “go away” and lot easier than a $20000 debt.
Good luck.