This paper investigates the information in corporate credit ratings. We examine the extent to which firms’ credit ratings measure the raw probability of default as opposed to the systematic risk of default, a firm’s tendency to default in bad times. We nd that credit ratings are dominated as predictors of corporate failure by a simple model based on publicly available financial information (failure score), indicating that ratings are poor measures of raw default probability. However, ratings are strongly related to a straightforward measure of systematic default risk: the sensitivity of firm default probability to its common component (failure beta). Furthermore, this systematic risk measure is strongly related to credit default swap risk premia.