How To Go Solar With Low Credit Score?

Preferring solar panel systems with low credit scores is completely possible through green banks, non-profit organizations, community solar, solar lease and power purchase agreements (PPAs), and different government programs. Solar energy has witnessed a huge rise in the past decade. For instance, 210 GW of solar capacity was installed in the US, having the capacity to provide power supply to more than 36 million homes.

You can go solar with low credit score by opting for non-conventional financing options such as Lease-to-Own Programs, power purchase agreements (PPAs), green banks, non-profit organizations, community solar, and various government programs. Most often, the average credit score required to qualify for solar loans is between 650 and 720. But, few lenders will be ready to provide loans if the score is as low as up to 600.

The average cost of solar panels in 2024 ranges up to $3.40 per watt, which includes hard costs such as hardware and equipment and soft costs such as installation, labor costs, solar loan costs, and fees. The overall installation costs of a U.S. residential solar panel system, range from $17,350 to $38,000 before applying the incentives.

Most importantly, financing solar energy with a low credit score can be challenging for you, which can increase interest rates and financially burden you with expensive solar installation.

Before finding how to improve your credit score, let’s explore its impact on solar financing and alternative financing options.

Impact of Credit Scores on Solar Financing

A credit score is a three-digit numerical value that ranges between 300 and 850 calculated based on your credit track records such as your credit accounts, account balances, regularity in payments, and many more. These types of scoring models are most commonly found in FICO and VantageScore. The main objective of a credit score is to estimate how you can repay loans on time. This is the main criteria, the lender uses your credit score with other information to evaluate if you’re eligible to qualify for a loan, which influences the interest rates and other charges.

These are the 3 tips to check your credit score and get reports:

1. Credit Scoring Website Checker for Free: You can visit a credit scoring website for free that can provide information related to your credit report or score on a weekly to monthly basis. To check the basic score updates, you won’t be required to pay any signup fees.
2. Credit Card Provider: Most often, your credit card companies allow checking credit scores for free.
3. Non-Profit Credit Counselor: Credit counseling is a non-profit service that supports customers to become debt-free. They provide money management advice, set up a budget, work with debtors, develop proper financial habits, and assist borrowers with an effective plan to repay their loans.

Credit scores can affect your loan approval for solar financing since lenders use this score to estimate the risk of lending a loan to you. The minimum credit score to prefer solar ranges between 600 and 650 depending upon the lender.

Borrowers with higher credit scores have lower risks and easily obtain loans with lower interest rates and benefit from increased savings, which is the opposite of the situation for individuals with lower credit scores.

Alternative Financing Options for Low Credit Scores

Here are the five main alternative financing options you should consider for low credit scores:

Government Programs

A few successful federal programs are listed below in detail:

1. The Weatherization Assistance Program (WAP) provides free weatherproofing services to more than 30,000 low-income households annually, and it is expected to increase up to $3.5 billion.
2. Low-Income Home Energy Assistance Program (LIHEAP) offers energy efficiency services to low-income households, which includes state, territory, and tribal governments.
3. Solar for All Grant Program was announced by the Biden-Harris Administration for $7 billion solar for all grant competitions to offer residential solar projects and provide annual savings of $350 million.

Similarly, here are the most popular state programs you should know:

1. California Disadvantaged Communities Single Family Solar Homes Program (DAC-SASH) provides funding for low-income single-family homes to support solar panel installation. This scheme is particularly for individuals living in economically struggling communities.
2. The Illinois Solar for All program (ILSFA) offers incentives for qualified installers to focus on low-income households, which is one of the selected winners from the Biden Administration’s Solar for All grant program.
3. Colorado Rooftop Low Income Program provides incentives and rebates for low-income earning individuals residing in Colorado.

Green Banks

Green Banks are financial companies owned by government, semi-public, or non-profit organizations that use public funds to attract private investors to increase their overall funds available for clean energy projects.

These are the main benefits of using Green Banks:

• Reduces paperwork by making use of online transactions and services, thereby reducing deforestation.
• Develops private capital, which motivates higher investment in renewable energy projects.
• Provides financial assistance to low-income and disadvantaged communities.
• Invests in renewable energy projects that include risky innovations such as Electric vehicles and Smart power grids.

Non Profit Organizations

Here are different nonprofit organizations that provide financial assistance and resources:

1. CollectiveSun is an organization that provides financing through a different approach to a normal PPA agreement. In simpler terms, the non-profit company pays for the entire duration of the PPA upfront costs and CollectiveSun makes use of the 30% solar tax credit by transferring half of the savings to the non-profit organization.

2. RE-volv makes solar panels more affordable for non-profits and community organizations. The SolarSeed Fund allows the nonprofit company to take advantage of solar leases or PPAs to save at least 15% on electricity bills. After a certain period, the non-profit company makes its PPA payment for reduced solar electricity, and the funds are redeposited back into the SolarSeed Fund to help invest in more solar projects.

3. Generation180 is a national-level non-profit company that motivates and guides individuals to take necessary action to adopt clean energy in residential and commercial areas. They provide various resources, tools, and financing options for groups aiming to prefer solar.

Community Solar

Community solar project refers to any solar power installation or any purchasing program within a specific region to benefit multiple customers or communities such as individuals, businesses, non-profits, and various groups. As a result, there won’t be any requirements to install solar panels on your properties.

The working of community solar is SIMPLE! The generated electricity in these projects flows through a net meter to the utility grid by harnessing the energy from sunlight. A certain percentage of the monthly fee is paid by the solar subscribers such as households, businesses, or any other electricity user for power generated by the community solar project.

The local utility pays the community solar provider for the electricity it produces. In return, each subscriber will get a credit that can be applied to the monthly electricity bill to offset costs.

The benefits of community solar include:

• Reduced electricity costs: The amount saved with community solar depends on important factors such as the model’s price, present electricity rates, and investment in your community solar purchase.
• Flexibility in contract terms and conditions: At present, community solar companies provide short-term contracts and make the process easier for canceling or transferring the agreement.
• The best option for renters and condo owners: Community solar is a promising alternative as you need not worry about the higher initial costs or maintenance if you are a renter or a condo owner sharing your roof.

At the same time, you need to know its risks, such as:

• Lack of tax incentives or rebates: If you don’t own a solar farm, you won’t be eligible to claim tax credits or rebates.
• Limited availability: Community solar isn’t available in every state in the US.
• Requirement of huge solar farms: Constructing an off-side community solar project requires huge space with intense sunlight.

Solar Lease and PPAs

Solar leasing is a financing option where the third-party owner such as a solar company installs the PV panels on your residential or commercial property. The working process is simple, as the company sells you the electricity generated at a fixed monthly price. However, your monthly payments for a specified tenure (mostly 20–25 years) are easily predictable since they are predetermined.

Similar to leasing, the PPAs (Power Purchase Agreements) are long-term contracts between you and the third-party owner, such as the solar energy provider. Through PPAs, homeowners purchase solar energy at a fixed amount per kilowatt-hour (kWh) according to the contract’s duration. But, the difference is that your monthly costs differ compared to leases, but you will still be paying the amount only for the electricity generated by your panels.

While considering the credit scores, solar leases, and PPAs share these common benefits:

• Easily accessible no matter if your credit score is low.
• Zero Down options ($0) allow you to save money from the first day your system is turned on and operated.
• Helps you to plan your budget accordingly since the monthly payments for leases are the same. Although the rates for PPAs fluctuate on a per-kWh basis, they are predictable because the costs are based on your monthly electricity usage.
• No financial burden related to maintenance and repairs since you don’t have the ownership of solar panels.

How To Improve Your Credit Score?

A good credit score is essential to maintaining your financial health, which can be improved by implementing the below-mentioned strategies:

1. Make Payments on Time, since the payment history records 35% of your FICO score.
2. Settle the account balances because 30% of your FICO score depends on your credit utilization rate.
3. Keep your oldest credit account open, even if you haven’t used it for a longer time.
   This helps to maintain the longest credit history which makes up to 15% of your FICO score.
4. Try to mix your credit by applying for different types of loans to meet your financial needs as well as enhance 10% of your FICO score. As a beginner, you can apply for starter credit cards and credit builder loans.
5. Apply for new credit only if required. This is because new applications result in a strict inquiry, which might reduce 10% of your FICO score.
6. Check for any errors on your credit report and apply for disputes to avoid negatively impacting your score.

Conclusively, the duration to improve your credit score depends on your situation, which typically takes 30 to 45 days for short-term improvements. Whereas for long-term improvements, it might take between 3 years and 6 years to recover from negative incidents such as foreclosure (3 years) or bankruptcy (6+ years).