Can you go solar with a low credit score?

If your credit score isn't the highest, getting larger purchases covered can sometimes feel challenging. Going solar is a big purchase, so many homeowners look to finance their solar systems. While your credit score and current debt-to-income ratio (DTI) are usually factors in your approval and interest rate with a lender, there are ways to go solar even without stellar credit. In this article, we'll share some resources and options for you to consider.

Knowing where you stand before you even start exploring solar financing will help you navigate the various options. Check your credit report and score as you would with big purchase planning, like buying a car or home.

How to get free access to your credit report

You can get one free copy of your credit report every 12 months from each of the three major U.S. credit bureaus – Equifax, Experian, and TransUnion. You can access these free credit reports via AnnualCreditReport.com, which is the official site (other than each credit bureau's website), so protect your personal information by not entering it on just any website! Be cautious of any sites that require you to enter credit card information before you can see your credit report. Even if they offer a free trial, you'll pay a monthly fee if you forget to cancel.

How to check your credit score for free

Your credit score is separate from your credit report, though it's determined by many of the items in your credit report. So, when you get a copy of your credit report, it won't include your credit score. You can get your credit score for free in a few ways, including:

• See if your current bank or credit card offers a free credit score or credit monitoring. Many let you see a credit score, so if you have an existing account, check your online account or ask a customer service rep or agent.

• You can check your FICO Score for free with Experian. They also have some paid credit monitoring services, but this one is free.

• Credit Karma offers free VantageScore 3.0 credit scores from Equifax and TransUnion via their website and app.

• Credit Sesame provides a free TransUnion credit score on their website.

Due to different credit scoring models, your score can vary depending on the model your lender uses. The FICO Score is the most common, but even if you get access to another score for free, you can usually see factors impacting your scores like high balances or numerous inquiries as well as the basic score range (e.g., poor, good, excellent), which are often comparable across different scores. Even if you have a lower credit score, you can usually still qualify for a solar loan – it just may cost you a bit more in interest, so your monthly payment will be higher.

With solar growing in popularity, there are more and more financing options becoming available, which may make it easier for you to invest in clean energy for your home and save money.

Green banks

Green banks provide both homeowners and businesses with another route to take when looking to fund clean energy upgrades. Often, they can provide reduced interest rates, extended loan term lengths, and low or no-money-down financing options. Examples of green banks include providing solar loans in Connecticut. Some of the other major green banks include:

• California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA)

• Colorado Clean Energy Fund

• CT Green Bank

• DC Green Bank (Washington, D.C.)

• Energize Delaware

• Finance New Orleans (Louisiana)

• Florida Solar & Energy Loan Fund (SELF)

• Hawaii Green Infrastructure Authority

• Maryland Clean Energy Center

• Michigan Saves

• Montgomery County Green Bank (Maryland)

• New York City Energy Efficiency Corporation (NYCEEC)

• NY Green Bank

• North Carolina Clean Energy Fund (NCCEF) - Currently, the NCCEF board is working to raise initial capital and operating funds.

• Philadelphia Green Capital Corporation (Pennsylvania)

• Rhode Island Infrastructure Bank

Capital Good Fund: DoubleGreen Loans

Locations available: Currently in Massachusetts and Rhode Island, coming soon to Texas
Loan amounts offered: $5,000 to $60,000
Interest Rates: 1.49% to 2.49%
Effective APR: 3.099% to 4.72%
Term length: 25 yrs
Payment details: Interest begins to accrue on day 61, and you have no payments for the first three billing cycles. There's also an option of interest buydown for a 20% closing fee (which is rolled into the loan).
Loan type: Currently unsecured, but they plan to offer secured solar loans.
Note: Interest rates are confirmed as of May 2022 and are subject to change.

This mission-based organization is a nonprofit lender dedicated to helping people fix their finances and have better access to sustainable financial opportunities like solar. Founder and CEO Andy Posner shares, "We're seeing transparency doesn't necessarily permeate the solar financing space. For instance, many options have fees added that may confuse consumers. Capital Good Fund is dedicated to full transparency and simple disclosures of fees, no teaser payments, and providing options that work for you based on your situation."

Details on their solar loan product: The DoubleGreen Loan can apply to solar panels or other clean energy upgrades such as high-efficiency heating and cooling equipment like heat pumps, insulation, and replacement windows. They have a team dedicated to solar loans, so you can submit a form to ask any questions here.

What makes them stand out: Capital Good Fund focuses on helping people in communities who may not usually get solar and other financial support opportunities. They have helped fund 10,000 loans totaling $20 million and graduated 2,000 people through their financial and health coaching programs. Maria Hidalgo, who used the DoubleGreen Loan to go solar, shares her story:

"I decided I wanted to own my solar panels for many reasons — it is cheaper than my electric bill, the tax credits are great, and it's good for the environment. As a mother, I want to protect my children's future, financially and environmentally. By giving me this loan, Capital Good Fund has made it possible for me to realize this dream. For now, I am just one of a few in my community who will have solar panels. I can confidently tell my friends, family, and neighbors that it's a great opportunity. I hope to see a lot more solar around me, and I hope they're as lucky as me to work with a community-oriented lender like Capital Good Fund." 

Other loan options

Outside of Green Banks and DoubleGreen Loans, there are some other loan options you'll want to know about. First, if you have a local lender you usually work with, you can check with them to learn about financing options. Having an established account history of on-time payments or existing credit with them may mean reduced scrutiny or relaxed requirements to get additional financing through them.

Additionally, EnergySage installers can provide quotes for financing through a lender they partner with during your simple quote process on the EnergySage Marketplace. Just select that option or speak with your installer about options to finance your solar system.

Depending on where you live, there may be some additional options, including:

Energy for All Program

If you live in California, Colorado, Maryland, Virginia, or the District of Columbia, you may have access to GRID Alternatives and their Energy For All Program. According to their website, they help "provide low-to-no cost solar electric systems to families that qualify as low income, and install them using a barn-raising model that gives volunteers and job trainees hands-on experience they can use to get jobs in the growing solar industry." You can learn more about the program and if you're eligible on their website.

Single-Family Affordable Solar Homes Program

If you live in California, the Single-Family Affordable Solar Homes (SASH) Program managed by GRID Alternative helps by providing up-front rebates to defray the solar system's costs. You have to be a homeowner and qualify, which you can learn more about on their website.

If you don't have an established credit history or maybe made some past mistakes, working on ways to help increase your credit score might make solar more accessible (through higher approval odds and lower interest rates). It's never too soon to start building credit! There are some free or affordable ways to do so, including:

Speak with a nonprofit credit counselor

The National Foundation for Credit Counseling (NFCC) helps people review their credit, create debt management plans, and even recover after bankruptcy. You can speak with an NFCC credit counselor for free – they have locations throughout the U.S! Their counseling and financial planning services may be paid, but they're often more affordable than other financial consultants, offer a free initial consultation, and provide lots of great free resources on their website.

Regularly monitor your credit.

Use a free credit monitoring app or website to get suggestions or flag what to work on first. Apps like Experian and Credit Karma offer free versions to see your score and learn credit score factors to understand what's impacting your score the most. Using these apps, you can reduce debt, pay off balances, and build your credit to help your score improve over time.

Experian also has a free product called Boost, which allows you to use bills you pay to help increase your credit score. You're getting credit (pun intended) for paying other bills on time that might not normally be included in your credit report and impact your credit score. Some of the bills include Netflix, AT&T, Spectrum, and Sprint, and their website touts that millions of points have been added across the country because of it. So, if your score is lower and you use streaming or cell providers like the ones they show, it may be worth signing up to see if you can get a free boost to your credit score.

Make a plan

A few areas impact your credit score most: payment history, amounts owed or credit usage, and credit history. Here are some ways to get started if you are looking to improve any of these:

• Payment history: One of the best things you can do for your credit is to ensure you pay bills on time. Set reminders for due dates, and if you foresee an issue paying a credit card or another bill, reach out to your creditor or bank as soon as possible. Sometimes they can work with you if you give them a heads-up.

• Credit usage: If you have high credit card balances, paying off debt will help your credit score go up. By making a budget and setting aside any extra money to pay down your debt, you can positively impact your debt-to-income ratio, which is what many lenders look at when considering loan approval.

• Credit history: If you haven't yet built up much of a credit history, lenders don't know that you have a solid track record of using credit and making on-time payments. If you have a low credit score, you can check out secured credit cards, which are easier to get because you essentially fund the card with a deposit. They are an excellent way to build up credit if you don't have a credit card already.

Keep your personal information secure.

Unfortunately, data breaches and identity theft are growing, with a startling 47 percent of Americans having experienced financial identity theft in 2020. If you're not monitoring your credit, you may not find out you're a victim of identity theft until you get denied credit when applying for a loan. If someone steals your identity and applies for credit in your name, your credit can suffer, and you may not even know it.

By regularly monitoring your credit score and reviewing your credit report, you can be on the lookout for credit inquiries and accounts you don't recognize. If you discover you're the victim of identity theft, the Federal Trade Commission (FTC) has an online form that helps you take the necessary steps. If you find a fraudulent account or information that is not accurate on your credit report, you should also contact that credit bureau immediately to begin the process to get the fraud flagged and any inaccurate information removed.

The best solar loan option for you will depend on where you live and your specific financial situation. Like selecting your solar equipment, getting various solar loan options is the best way to see what's available. Make sure you ask questions to confirm any solar loan fees, check out any reviews available to ensure your lender has a solid reputation, and review the details on your payments over the lifetime of your loan. Working with a trusted installer and lender is a great way to ensure you're comfortable with your decision.

What credit score is needed for a solar loan?

Usually, you'll need a minimum score of 600 or 650. However, a credit score isn't the only important number when getting a solar loan: the overall requirements to get approved depend on your lender and other factors, including your existing debt. You can contact trusted lenders to learn more about their requirements, get pre-approved, and see what terms you might qualify for with a solar loan.

What is a finance charge on a solar loan?

Your finance charge or interest rate on a solar loan will vary depending on a few factors, including the type of loan (secured or unsecured), your credit score and current debt, and the current U.S. Federal Reserve (the Fed) rate. Your annual percentage rate for solar may be approximately 4 – 5 percent.

Are solar loans tax deductible?

That depends. You can sometimes claim the interest of your solar loan as a "capital investment" to your home if you itemize deductions for your federal taxes. Of course, you'll need to check with your CPA or a tax professional to confirm the most up-to-date IRS guidelines based on your situation and tax filing. Separately, adding solar panels to your home (whether you pay cash or with a loan) does qualify you for the investment tax credit (ITC), also known as the federal solar tax credit, which allows you to deduct 26 percent of your solar installation costs from your federal taxes as of 2022.

You can join EnergySage today for free to connect with installers in your area who offer financing options or work with trusted local solar lenders. Through your EnergySage account, you can compare multiple quotes and financing options. Just want to see who offers solar financing near you? Search for lenders in your area.