diff --git a/setup/bindir/cloud-set-guest-password.in b/setup/bindir/cloud-set-guest-password.in
index ad779bc3807..be3a0effab6 100755
--- a/setup/bindir/cloud-set-guest-password.in
+++ b/setup/bindir/cloud-set-guest-password.in
@@ -26,6 +26,7 @@ do
 			logger -t "cloud" "Found password server IP $PASSWORD_SERVER_IP in $DHCP_FILE"
 			logger -t "cloud" "Sending request to password server at $PASSWORD_SERVER_IP"
 			password=$(wget -q -t 3 -T 20 -O - --header "DomU_Request: send_my_password" $PASSWORD_SERVER_IP:8080)
+			password=$(echo $password | tr -d '\r')
 
 			if [ $? -eq 0 ]
 			then
@@ -75,14 +76,12 @@ then
 	fi
 fi
 
-password=$(echo $password | tr -d '\r')
-
 logger -t "cloud" "Changing password ..."
 echo $password | passwd --stdin $user
 						
 if [ $? -gt 0 ]
 then
-	usermod -p `mkpasswd $password 42` $user
+	usermod -p `mkpasswd -m SHA-512 $password` $user
 		
 	if [ $? -gt 0 ]
 	then