My computer is a 13.3 inch
Time to upgrade man.
Whenever I set it as my background, the picture is stretched out and far too blurry
Resizing UP as opposed to down (unless it's a vector) will cause that to happen. What is the original size of the photo? 498px × 750px? If so, then you are SOL b/c even if you stretch it proportionally, it will become pixelated (aka look like garbage).
Find the original and post it if 498px × 750px is not the original size, but the altered size.