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FICO® and TransUnion® are two terms affiliated with credit that you may be familiar with. TransUnion is a consumer credit reporting agency — one of the three major credit bureaus that maintains credit reports on most consumers. FICO generally refers to a FICO credit score, which is issued by the Fair Isaac Corporation and is one of the most popular types of credit scores.

Learn more on what TransUnion and FICO are, how they differ from each other, and why both are important when it comes to your credit profile.

What Is a Credit Report?

Your credit report is a record that details your history of borrowing and repaying loans, as well as your use of credit. The three major credit reporting agencies — Equifax®, Experian®, and TransUnion — each compile consumer credit information, meaning many individuals have reports from all three.

Credit scores are usually determined based on the data in these reports. One way to build your credit is by enhancing the information reflected in your credit report.

What Is TransUnion?

TransUnion is a leading global credit reporting agency that collects and manages consumer credit data to help lenders and businesses assess credit risk. Alongside Equifax and Experian, TransUnion is one of the three major credit bureaus in the United States. It compiles information such as payment history, credit utilization, and outstanding debts, which are used to generate credit reports for individuals and businesses.

In addition to providing credit reports, TransUnion offers services like credit monitoring, fraud protection, and identity theft prevention.

Recommended: Which Credit Bureau Is Used Most?

What Is a FICO Score?

A FICO Score is a widely used credit scoring model developed by the Fair Isaac Corporation to assess an individual’s creditworthiness. It is calculated based on factors such as payment history, credit utilization, length of credit history, types of credit accounts, and new credit inquiries.

Ranging from 300 to 850, a higher FICO Score indicates lower credit risk, making it easier for borrowers to qualify for loans and secure favorable interest rates.

Difference Between TransUnion vs. FICO

The key difference between TransUnion and FICO is their roles in the credit industry. TransUnion is a credit reporting agency that collects and maintains consumer credit data, such as payment history, debts, and credit accounts, and provides credit reports. On the other hand, FICO is a credit scoring model that uses the data from credit reports, including those from TransUnion, to generate a numerical score assessing a person’s creditworthiness.

Credit scores and credit reports are two different things, although they are similar. TransUnion, along with the other two major credit reporting agencies — Experian and Equifax — created the VantageScore® credit score model in 2006. When you compare VantageScore vs. FICO, you are comparing apples to apples, as these are two different credit score models.

How Credit Scores Are Calculated

There are many different types of credit scores, calculated by different companies. Each company may use a different formula or different information. Some companies may provide their specific criteria, while others may keep that information proprietary. The Fair Isaac Corporation lists five factors that affect your FICO score:

•   Payment history (35%)

•   Amounts owed (30%)

•   Length of credit history (15%)

•   Credit mix (10%)

•   New credit (10%)

Lowering your credit card utilization is one way that you may be able to build your credit score.

Why Are There Different Scores?

There are different types of credit scores because there are different companies that provide and promote these scores. Each company creates credit scores because they believe they have a better model for defining credit risk, and can sell that model to a bank, credit union, or spending app. The good news is that most of these credit score companies use similar information, which means that each of your credit scores should usually be within a few points of each other.

How to Check a TransUnion Credit Report

If you want to check your TransUnion credit report, follow these steps:

•   Visit the TransUnion website: Go to TransUnion’s official site at www.TransUnion.com.

•   Create an account: Sign up for an account by providing personal details such as your name, address, Social Security number, and date of birth.

•   Request a credit report: Once your account is set up, you can access your credit report for free once a year through AnnualCreditReport.com or request it directly from TransUnion.

•   Review the report: Look through your credit report for any inaccuracies or unfamiliar accounts that could be signs of identity theft.

•   Dispute errors: If you find mistakes, use TransUnion’s online platform to file a dispute for corrections.

How to Check a FICO Score

If you want to check your FICO Score, you can do so in a variety of ways:

•   Check with your credit card issuer: Many credit card companies, like Discover and American Express, offer free FICO scores to customers.

•   Visit MyFICO.com: The official FICO website provides access to multiple score versions for a fee.

•   Use free credit monitoring services: Platforms like Experian offer free access to your FICO Score.

•   Contact your bank or credit union: Some banks and credit unions provide FICO scores as part of their customer benefits.

Recommended: Free Credit Score Monitoring with SoFi

The Takeaway

TransUnion is one of the three major credit bureaus that produces credit reports. FICO Scores, on the other hand, are credit scores produced by the Fair Isaac Corporation and are one of the most popular forms of credit scores, used by 90% of top lenders.

While credit reports (such as TransUnion) and credit scores (such as FICO) are similar, they have different roles when it comes to evaluating your credit.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Is the FICO Score more important than TransUnion?

Many lenders use your FICO Score as a way to determine whether they will extend you credit, such as a new credit card. If you are applying for a new loan or a mortgage, a bank or credit union may pull your full credit report from a credit bureau such as TransUnion, Equifax, or Experian.

Do lenders look at FICO or TransUnion?

Whether a lender looks at just your credit score (such as your FICO credit score) or your full credit report (such as from TransUnion) will depend on why they are interested in you. Often, if you are applying for a credit card or something with a smaller balance, they may only look at your credit score. If you are applying for a mortgage or something with a larger credit line, the lender may look at your full credit report.

Is TransUnion the correct credit score?

TransUnion is not actually a credit score — TransUnion is a credit bureau that provides a credit report. It is one of the three major credit bureaus in the United States, along with Equifax and Experian. Lenders may pull a credit report from Equifax, Experian, or TransUnion, depending on a number of different factors that are generally out of your control as a consumer.

Is FICO owned by TransUnion?

No, FICO credit scores are issued by the Fair Isaac Corporation. TransUnion is a separate company that is primarily focused on issuing credit reports. TransUnion issues credit score updates when new information is received that is relevant to your credit report.

What is a good FICO Score?

FICO scores are typically categorized into five levels, ranging from poor to exceptional. A FICO Score between 670 and 739 is considered good. Scores falling within the very good range (740 to 799) or the exceptional range (800 to 850) are even more favorable.

Which credit score is most accurate?

No single credit score is considered more accurate than another. Instead, different credit scores offer unique insights into a consumer’s spending and borrowing patterns. Because of this, banks and lenders may rely on different scoring models based on what they find most relevant or predictive for their needs.

photo credit: iStock/tolgart
SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SORL-Q125-023

FICO® Scores, issued by the Fair Isaac Corporation, are one of the most popular types of credit scores. FICO Scores were first introduced in 1989, and there are currently 16 distinct FICO versions in use today. FICO Score 8 and FICO Score 9 are two of the more popular versions (or models).

Keep reading to learn more on FICO Score 8 and FICO Score 9, including how each works, how they differ, and which score lenders use the most.

What Are FICO Scores?

A FICO Score is a type of credit score produced by the Fair Isaac Corporation. They list five factors that can affect your FICO score:

•   Payment history (35%)

•   Amounts owed (30%)

•   Length of credit history (15%)

•   Credit mix (10%)

•   New credit (10%)

Your FICO Score is a three-digit number that ranges from 300 to 850, and can help lenders decide how much of a credit risk you might be. Lowering your credit card utilization is one way that you may be able to build your credit score.

Recommended: 10 Strategies for Building Credit Over Time

Why There Are Different FICO Score Versions

While the Fair Isaac Corporation does share the broad information that makes up a FICO Score, they do not share exactly what goes into a FICO Score. The same is true of other companies that produce credit scores. When you look at VantageScore vs. FICO Scores, for example, you may find that the same person has varying scores, though they’re usually fairly close across all scoring companies.

FICO is constantly tweaking its model to make it as predictive as possible, which is why there are multiple FICO Score versions used.

How Different FICO Score Versions Are Used

Different FICO Score versions are used depending on the type of loan and the lender’s preferences. Here’s a breakdown:

FICO Score 8 (Most Common)

•   Widely used for credit card approvals, auto loans, and personal loans

•   Known for being sensitive to high credit card utilization

FICO Score 9 (Improved Model)

•   Used by some lenders for personal loans and credit cards

•   More lenient on medical debt and paid collection accounts

•   Incorporates rent payment history, if reported

FICO Score 2, 4, and 5 (Mortgage Scores)

•   Specifically used in mortgage lending

•   Required by Fannie Mae and Freddie Mac for home loans

•   Older models that focus heavily on payment history and derogatory marks

FICO Auto Score 8 & Auto Score 9

•   Tailored for auto loan approvals

•   Gives more weight to auto loan payment history

FICO Bankcard Score 8 & Bankcard Score 9

•   Used for credit card approvals

•   Score ranges from 250 to 900

•   Places more emphasis on credit card behavior and revolving credit usage

FICO Score 10 and 10T (Newest Versions)

•   Not yet widely adopted

•   FICO 10T incorporates trending data, which looks at credit usage patterns over time

•   More predictive and accurate, but lenders are slow to switch due to compatibility issues

Lenders choose specific versions based on the type of risk they want to assess and the industry standards they follow.

Key Features of FICO Score 8

FICO Score 8 is one of the most widely used credit scoring models by lenders to assess a borrower’s creditworthiness. It places a strong emphasis on payment history and credit utilization, with late payments and high credit card balances significantly impacting the score.

Additionally, FICO Score 8 does not differentiate between paid and unpaid collection accounts. This model is favored for its balanced approach to evaluating risk while helping lenders make more accurate lending decisions.

Key Features of FICO Score 9

FICO Score 9 introduces several enhancements over FICO Score 8, offering a more refined assessment of creditworthiness. It disregards paid collection accounts, which can positively impact borrowers who have settled past debts. Additionally, it reduces the negative impact of medical collections compared to other types of debt.

The model also incorporates rental payment history when reported, providing an opportunity for renters to build credit. These improvements aim to provide a fairer and more accurate reflection of a consumer’s financial behavior, helping lenders make better-informed decisions.

Which Do Lenders Use More: FICO Score 8 or FICO Score 9?

Lenders predominantly use FICO Score 8 for most credit decisions, as it’s the most widely adopted version of the FICO Score. FICO Score 9 is newer and includes some improvements. As of now, though, many lenders still rely on FICO Score 8 because it has been in use longer and has a more established track record.

Major Differences Between FICO Score 8 and FICO Score 9

FICO Score 8 and FICO Score 9 are two different models of the FICO Score credit score model. Here’s a look at the major differences between FICO Score 8 and FICO Score 9:

Medical Debt:

•   FICO Score 8: Treats medical debt the same as other types of debt, potentially lowering your score.

•   FICO Score 9: Excludes medical debt from the score if it’s paid off, making it less impactful once paid.

Collection Accounts:

•   FICO Score 8: Does not differentiate between types of collections, meaning both paid and unpaid collections can harm your score.

•   FICO Score 9: More lenient on paid collection accounts, which won’t negatively impact the score once they’re settled.

Rent Payment History:

•   FICO Score 8: Does not consider rent payments when calculating the score.

•   FICO Score 9: Includes rent payment history if it’s reported, which can benefit renters with a positive payment history.

Authorized User Accounts:

•   FICO Score 8: Considers authorized user accounts as part of the score, even if the primary account holder is not using the card responsibly.

•   FICO Score 9: De-emphasizes authorized user accounts to avoid inflating scores based on potentially inactive accounts.

Credit Utilization:

•   FICO Score 8: Focuses on credit utilization ratios, especially for credit cards, to assess creditworthiness.

•   FICO Score 9: Similar in its approach to credit utilization, but may calculate this slightly differently to reflect more accurate borrower behavior.

Overall, FICO Score 9 offers a more updated approach to certain types of debt and credit behaviors compared to FICO Score 8, but FICO Score 8 is still more commonly used.

How to Check Your FICO Scores

You have a few options to check your credit report and score, including ways to check your credit score without paying. Here are some ways to check your FICO Scores:

•   Check with your credit card issuer: Many credit card companies, like Discover and American Express, offer free FICO scores to customers.

•   Visit MyFICO.com: The official FICO website provides access to multiple score versions for a fee.

•   Use free credit monitoring services: Platforms like Experian offer free access to your FICO Score.

•   Contact your bank or credit union: Some banks and credit unions provide FICO scores as part of their customer benefits.

Recommended: Free Credit Score Monitoring with SoFi

The Takeaway

FICO scores, produced by the Fair Isaac Corporation, are one of the more popular types of credit scores used by 90% of lenders. FICO Score 8 and FICO Score 9 are two different versions of the FICO score model.

According to the Fair Isaac Corporation, FICO Score 8 is still the most widely used version of the FICO score, and FICO Score 9 is also still widely used by lenders, even though both models have been available for over a decade.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Is FICO 8 or FICO 9 better?

FICO 9 is considered an improvement over FICO 8, as it reduces the impact of medical debt, disregards paid collections, and includes rental payment history if reported. However, FICO 8 remains widely used by lenders, so its relevance depends on the lender’s preference and the borrower’s financial situation.

What is a good FICO 8 score?

A good FICO 8 score typically falls between 670 and 739. This range indicates that a borrower is considered low-risk by lenders, which can lead to better loan terms and interest rates. Scores above this range are considered very good or excellent, further enhancing borrowing opportunities and financial benefits.

Which FICO score is most important?

The different FICO score models are similar, and none is considered to be more important than any others. Different lenders may use different FICO score models depending on which model they find most advantageous for their purposes.

Is FICO score 8 still used?

Yes, even though FICO Score 8 was first introduced in 2009, it is still widely used in the lending industry. However, over time, lenders will likely start migrating to newer FICO scoring models, such as FICO Score 9, FICO Score 10, and FICO Score 10T.

Is a FICO score of 8 good to buy a house?

It is important to understand that FICO Score 8 refers to the eighth version of the FICO credit scoring model, and not to an actual FICO Score of 8. FICO scores have a minimum of 300, so it is impossible to have a FICO Score of 8. To buy a house with a mortgage, you will likely need to have a FICO Score in the good range (meaning a score of at least 670), though requirements vary by lender.

Do any lenders use FICO 9?

Yes, some lenders use FICO Score 9, especially for personal loans and certain types of credit evaluations. However, FICO Score 8 remains the most widely used version. FICO 9 enhances rental payment reporting and reduces the impact of medical debt, making it appealing for specific lending situations.

Photo credit: iStock/milorad kravic

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SORL-Q125-022

Understanding the differences between CreditWise and FICO® Score is essential for managing your credit health. While both tools provide insights into your creditworthiness, they use distinct scoring models and data sources.

FICO scores are produced by the Fair Isaac Corporation and are one of the most popular types of credit scores. CreditWise is a service provided by Capital One that provides you access to your TransUnion® credit report and your VantageScore® 3.0 credit score.

This article will explore how these scores are calculated, their impact on your financial decisions, and which one lenders prefer.

What Is a Credit Report?

Your credit report is a statement that has information about how well you have historically paid loans and used other types of credit. Most consumers have more than one credit report. This is because there are multiple companies that collect and maintain credit information about consumers.

Three of the largest credit reporting bureaus are Equifax®, Experian®, and TransUnion. Each of these credit bureaus collect information about consumers, and many consumers have credit reports from all three. Typically, credit scores are calculated using the information gathered from the three credit bureaus.

Recommended: How Long Does It Take to Build Credit?

How CreditWise Works

CreditWise, a free credit monitoring tool offered by Capital One, empowers users to track their credit health without affecting their credit score. By utilizing data from TransUnion and the VantageScore 3.0 model, CreditWise provides users with a clear snapshot of their credit status.

One of its standout features is the credit simulator, which allows users to explore how financial decisions — such as paying off debt or applying for a new credit card — could impact their score. CreditWise also sends real-time alerts for significant changes in credit activity, helping users detect potential fraud and stay informed about their credit profile.

How FICO Works

FICO, or the Fair Isaac Corporation, is a leading provider of credit scoring models widely used by lenders to assess creditworthiness. The FICO score is calculated using data from the three major credit bureaus — Experian, TransUnion, and Equifax — and evaluates factors such as payment history, credit utilization, length of credit history, new credit inquiries, and credit mix.

By analyzing these factors, FICO generates a score ranging from 300 to 850, helping lenders gauge the risk associated with lending money or extending credit to a borrower.

Recommended: 10 Strategies for Building Credit Over Time

Differences Between CreditWise vs. FICO

The primary difference between CreditWise and FICO lies in their scoring models and purpose. CreditWise uses the VantageScore 3.0 model, which analyzes credit data from TransUnion. It’s a free tool that helps consumers monitor their credit health.

On the other hand, FICO scores are the industry standard, used by over 90% of lenders to assess creditworthiness. FICO scores are based on data from all three major credit bureaus: Experian, TransUnion, and Equifax.

While CreditWise is great for tracking trends and identifying fraud, FICO scores play a crucial role in loan approvals and interest rate determinations.

Recommended: Differences Between VantageScore and FICO Credit Scores

How Credit Scores Are Calculated

Different companies calculate their credit scores in different ways, though most companies use similar information. As mentioned above, the Fair Isaac Corporation lists five factors that affect your FICO score:

•   Payment history (35%)

•   Amounts owed (30%)

•   Length of credit history (15%)

•   Credit mix (10%)

•   New credit (10%)

Paying your bills on time and lowering your credit card utilization are two common ways that you can build your credit score.

Why Are There Different Scores?

There are different credit scores because each scoring model uses unique algorithms to assess creditworthiness. Additionally, scores can vary depending on which credit bureau — Experian, TransUnion, or Equifax — provides the data. Each model weighs factors like payment history and credit utilization differently, leading to score variations.

Generally, though, different credit scores for the same person should be within a few points of each other.

How to Check Your Credit Score and Report

There are a few ways that you can check your credit score and your credit report. You may be able to access your credit score as a perk of certain credit cards that you may already have or spending apps that you subscribe to. You can get a copy of your credit report for free from each of the three major credit reporting bureaus at least once per year.

How to Access Your FICO Score and CreditWise Report

If you want to know your FICO score specifically, here’s how to check it:

•   Check through your bank or credit card issuer: Many financial institutions offer free FICO score access to customers.

•   Visit the official FICO website: Purchase your score directly from myFICO.com.

•   Use credit monitoring services: You can sign up for credit score monitoring. SoFi’s credit monitoring service allows you to track your credit score and receive weekly updates at no cost.

•   Check with credit counseling agencies: Some nonprofit agencies offer free credit score reviews.

•   Request a credit report: While not always included, some reports might show your FICO score.

Here’s how you can access your CreditWise report:

•   Download the CreditWise app: Available on iOS and Android devices for easy access.

•   Visit the CreditWise website: Access the report directly at www.CreditWise.com.

•   Sign up through Capital One: CreditWise is free for Capital One customers, but others can also access it.

•   Use the Capital One mobile app: Check your credit score and report from the app if you’re a Capital One customer.

•   Monitor credit activity regularly: Track changes in your credit score and report updates over time.

The Takeaway

There are many companies that produce credit scores, and each credit score uses different information and a different model.

FICO credit scores are produced by the Fair Isaac Corporation, and are one of the most popular types of credit scores. CreditWise is a service provided by Capital One, and provides access to your VantageScore credit score. These two types of credit scores are different, though generally your scores should fall in the same range.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

How close/accurate is CreditWise?

CreditWise is a service provided by Capital One to its customers, and it provides access to your credit report, credit score monitoring, and your VantageScore credit score. VantageScore is considered a valid credit score, and while it is not the same as a FICO credit score, it should generally be within a few points of FICO and other credit scores.

Why is my FICO score lower than my CreditWise score?

Your FICO score may be lower than your CreditWise score because they use different scoring models. FICO considers factors like payment history and credit utilization, while CreditWise uses the VantageScore model, which weighs credit behavior differently. Additionally, each service may access data from different credit bureaus, leading to score variations.

Is CreditWise your real credit score?

CreditWise provides a VantageScore 3.0 based on data from TransUnion, which is a legitimate credit score but not the same as a FICO score, which most lenders use. While helpful for monitoring credit health, it may not be the exact score lenders reference when making lending decisions.

What’s more accurate, CreditWise or FICO?

FICO scores are considered more accurate for lending decisions, as they are used by the majority of lenders to assess creditworthiness. CreditWise, which provides a VantageScore 3.0, is helpful for monitoring credit health but may differ from the score lenders rely on when evaluating loan applications.

Which score is closest to FICO?

VantageScore is the closest alternative to FICO, as both use similar credit data from the major bureaus — Experian, Equifax, and TransUnion. However, their scoring models differ slightly. FICO scores range from 300 to 850, while VantageScore also falls within this range but weighs factors like payment history and credit utilization differently.

What is a good CreditWise score?

A good CreditWise score typically falls within the range of 670 to 739 on the VantageScore 3.0 scale, which ranges from 300 to 850. Scores in this range indicate responsible credit management and make it easier to qualify for loans, credit cards, and favorable interest rates.

Photo credit: iStock/Delmaine Donson

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SORL-Q125-021

Self-employment tax consists of Social Security and Medicare tax, which are the same taxes that would be withheld from your pay if you worked for an employer. If you work for yourself, you’ll need to ensure you’re handling your tax filing correctly. That means paying self-employment tax, typically in four estimated quarterly installments along with any federal, state, and local income tax owed.

Here’s what you should know about self-employment tax if you’re contemplating being your own boss or are already up and running as a freelancer.

What Is Self-Employment Tax?

Self-employment tax is the income tax you pay on net earnings, as mandated by the Self-Employment Contributions Act (SECA). The IRS determines who must pay self-employment tax.

SECA taxes help to fund Social Security and Medicare benefit programs for people who are elderly, retired, or disabled, as well as their eligible dependents. That’s the same as Federal Insurance Contributions Act (FICA) taxes, which are part of your income tax withholding if you work for an employer.

Self-employment tax exists to ensure that people who work for themselves pay their share of federal income tax. It’s important to understand how much you’re making and what tax bracket you’re in, and to report your self-employment income accurately, because what you earn influences what you’ll be able to collect from Social Security when you retire.

Recommended: Credit Monitoring

How Much Is Self-Employment Tax?

The Internal Revenue Service sets the self-employment tax rate at 15.3%. There are two parts to the tax:

•   12.4% for Social Security, which is also referred to as Old-Age, Survivors, and Disability Insurance (OASDI)

•   2.9% for Medicare

The amount you pay in self-employment tax depends on how much you earn from self-employment for the year and what you deduct. It doesn’t matter what profession you are pursuing, whether you’re an actor or a nature photographer (which can be a good job for introverts).

What is the amount of the self-employment tax (SECA), and how does it compare to FICA taxes? The tax rates are the same. What’s different is how they’re paid.

•   If you’re self-employed, you’re responsible for calculating and paying all SECA taxes.

•   If you work for someone else, your employer determines how much to withhold from your checks each pay period.

Employers cover half of the tax for their employees. So, instead of paying 15.3% yourself, you’d pay 6.2% for OASDI (Social Security) taxes and 1.45% for Medicare tax, while your employer pays the rest.4 However, you as a self-employed individual may deduct the other half of this payment (the portion an employer would pay) on your tax return when calculating your adjusted gross income.

Recommended: How Much Do You Have to Make to File Taxes?

Who Has to Pay Self-Employment Tax?

The IRS requires you to pay self-employment tax if either of the following is true:

•   Your net earnings from self-employment are $400 or more

•   You had church employee income of $108.28 or more

Those rules apply to sole proprietors, independent contractors, partners, and single-member limited liability corporations (LLCs).

Net earnings are the part of your gross income you keep after subtracting “ordinary and necessary” trade or business expenses. If you’re self-employed as a sole proprietor or independent contractor, you use Schedule C to calculate your net earnings from self-employment. Self-employment tax is reported on Schedule SE of your Form 1040.

There’s no age exemption for self-employment tax; if you owe it, you’ll need to pay it even if you already receive Social Security benefits.

Self-Employment Tax Rate for 2024 and 2025

If you’re preparing for tax season, it helps to know if there are any updates to tax rates. The self-employment tax rate for 2024 is 15.3%; it’s the same for 2025. So for returns you file in 2025 and 2026, you’ll calculate self-employment tax as 15.3% of net earnings.

What’s different for each tax year is the amount of your net earnings that are subject to Social Security tax. This is called the wage base limit.

•   For 2024, the wage base limit for the Social Security portion of self-employment tax is $168,600.1

•   For 2025, the wage base limit increases to $176,100.

How much is self-employment tax, in terms of your total income? According to the IRS, the amount of net earnings subject to self-employment tax is 92.35%. All your net earnings are subject to the Medicare tax.

Certain self-employed individuals are subject to an additional Medicare tax of 0.9%. This tax applies if your income is above a certain threshold for your filing status. Here are the current thresholds for both 2024 and 2025.

Recommended: What Are the Different Types of Taxes?

How to Calculate Self-Employment Tax

A self-employment tax calculator (options are available online) can help you estimate what you’ll owe, and using an online budget planner can help you monitor your money year-round.

That said, you don’t always have to rely on tech. It’s possible to do the calculations yourself. Here’s how to calculate self-employment tax in a few simple steps.

1.   Calculate your net earnings from self-employment, which again is the difference between your gross income and deductible expenses.

2.   Multiply your net earnings by 92.35%.

3.   If the amount is less than $168,100, multiply it by 12.4% to calculate your Social Security tax. Otherwise, multiply $168,100 by 12.4%.

4.   Multiply the amount you got in step two by 2.9% to calculate your Medicare tax.

You should now have two amounts. The final step is to add them together.

Example Self-Employment Tax Calculation

If you’re new to self-employment tax (and possibly paying taxes for the first time as well), it can help to have an example to follow of how to calculate what you owe.

Say you start an e-commerce store. You bring in $110,000 in gross income and have $10,000 in home office expenses, leaving you with $100,000 in net earnings. Now you can do the math.

•   $100,000 x 92.35% = $92,350

•   $92,350 x 12.4% = $11,451.40

•   $100,000 x 2.9% = $2,678.15

•   $11,451.40 + $2,678.15 = $14,129.55 in self-employment tax

You can deduct one-half of what you pay in self-employment tax. Deductions reduce your taxable income for the year, which can help you to owe less or get a bigger refund.

How to Pay Self-Employment Tax

Self-employment tax is typically paid in four installments, called quarterly estimated payments. These payments reflect the amount you estimate you’ll owe in taxes based on your expected net earnings.

Quarterly payments are typically due:

•   April 15 for income earned from January 1 to March 31

•   June 15 for income earned from April 1 to May 31

•   September 15 for income earned from June 1 to August 31

•   January 15 of the following year for income earned from September 1 to December 31

Making quarterly payments doesn’t mean you don’t have to file a federal income tax return. You don’t want to miss your tax filing deadlines for those quarterly payments, but you’ll still need to hit the annual tax filing deadline, which is usually April 15.

If you’ve underpaid your estimated taxes, you may owe when you file. The IRS could also impose an underpayment penalty if you owe more than $1,000. Underpayments and missed payments are two of the biggest tax filing mistakes to avoid when you’re self-employed.

Tax Deductions for Self-Employment

Claiming tax deductions can shrink your taxable income. Some deductions are designed for people who are self-employed or run businesses, while other deductions are available to anyone who qualifies.

Examples of self-employed deductions include:

•   Half of the self-employment tax you paid, as noted above

•   Contributions to a self-employed retirement plan, such as a solo 401(k) or SEP IRA

•   Contributions to a traditional IRA

•   Health Savings Account (HSA) contributions (if you have a high deductible health plan)

•   Health insurance premiums

•   Home office expenses (an online money tracker can help you keep tabs on these)

•   Mileage and travel expenses, if that applies to the type of business you run

You may also be able to claim other deductions as well, based on how you file. For example, a sole proprietor can write off mortgage interest, student loan interest, and charitable contributions alongside business expenses.

Worth noting: If you’re filing taxes on investment income, you can also deduct expenses related to maintaining the property.

The Takeaway

Self-employment tax refers to the Social Security and Medicare taxes that earners who are not employees must pay. Typically, employers pay half this amount, but the self-employed must pay the full 15.3% amount and can then deduct half when doing their taxes. Understanding how and when self-employment taxes are due can play an important role in tracking and managing your money well.

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FAQ

Why do I have to pay self-employment tax?

You have to pay self-employment tax because that is the law. Paying self-employment tax isn’t that different from the tax withholding your employer would take from your check if you had a regular 9 to 5 job.

What is 30% tax for self-employed?

The 30% rule of thumb for self-employed taxpayers suggests holding back 30% of your gross income to cover your tax obligations. The idea is that by setting aside this much, you should be able to comfortably cover your self-employment tax obligations.

What is the 20% self-employment deduction?

Some self-employed individuals may be able to take advantage of the Qualified Business Income (QBI) deduction. This deduction allows you to write off up to 20% of your QBI, plus 20% of any qualified real estate investment trust (REIT) dividends you receive. This deduction is only available, however, to businesses in certain trades and industries.

How do I get the biggest tax refund when self-employed?

Getting a tax refund means that you’ve paid in more tax than you owe. The simplest way to increase your refund size is to maximize your deductions. Maxing out a tax-advantaged retirement plan, itemizing every eligible business expense, and deducting other expenses, like charitable contributions or mortgage interest, could help you snag a bigger refund.

How much can an LLC write off?

Technically, there’s no limit on the dollar amount an LLC, or limited liability company, can write off. However, each expense you deduct must be legitimate and reflect the amount you actually spent. It’s wise to keep a paper or digital trail to document your deductible business expenses, just in case the IRS comes knocking with an audit.

What happens if my LLC makes no money?

If your only source of income is an LLC and you make no money, then you wouldn’t owe any taxes since there are no net earnings to report. You would, however, still need to file your return and document any net operating losses. A net operating loss happens when your business spends more than it brings in.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

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