diff --git a/src/compiler/checker.ts b/src/compiler/checker.ts
index eaa28767166c2..87d5f9e97110d 100644
--- a/src/compiler/checker.ts
+++ b/src/compiler/checker.ts
@@ -14301,11 +14301,11 @@ namespace ts {
                         candidateName === "set") {
                         continue;
                     }
-                    const distance = levenshtein(name, candidateName);
+                    const distance = dameraulevenshtein(name, candidateName);
                     if (distance > worstDistance) {
                         continue;
                     }
-                    if (distance < 3) {
+                    if (distance <= MIN_LEV_DIST) {
                         return candidate;
                     }
                     else if (distance < bestDistance) {
diff --git a/src/compiler/utilities.ts b/src/compiler/utilities.ts
index a859fde9cc1ec..a1a3dfe412414 100644
--- a/src/compiler/utilities.ts
+++ b/src/compiler/utilities.ts
@@ -4642,26 +4642,48 @@ namespace ts {
         return identifier.length >= 3 && identifier.charCodeAt(0) === CharacterCodes._ && identifier.charCodeAt(1) === CharacterCodes._ && identifier.charCodeAt(2) === CharacterCodes._ ? identifier.substr(1) : identifier;
     }
 
-    export function levenshtein(s1: string, s2: string): number {
-        let previous: number[] = new Array(s2.length + 1);
-        let current: number[] = new Array(s2.length + 1);
-        for (let i = 0; i < s2.length + 1; i++) {
+    const CHANGE_COST = 2; // Make substitutions costly, since when they appear in short strings they're normally obvious errors we don't want to promote
+    const INSERT_COST = 1;
+    const DELETE_COST = 1;
+    const TRANSPOSE_COST = 0.95; // Transpositions slightly cheaper than insertion/deletion/substitution to promote transposed errors
+    export const MIN_LEV_DIST = TRANSPOSE_COST;
+    export function dameraulevenshtein(s1: string, s2: string): number {
+        if (s1.length > s2.length) [s1, s2] = [s2, s1]; // Swap arguments so s2 is always the short one to use minimal memory
+        const rowLength = s2.length + 1;
+        let prevprev: number[] = new Array(rowLength);
+        let previous: number[] = new Array(rowLength);
+        let current: number[] = new Array(rowLength);
+        for (let i = 0; i < rowLength; i++) {
+            prevprev[i] = Infinity;
             previous[i] = i;
-            current[i] = -1;
         }
+
+        // For each row in the matrix beyond the first (which is in previous)
         for (let i = 1; i < s1.length + 1; i++) {
+            // Set the first element to the row number (representing the distance required to remove the prefix to that point)
             current[0] = i;
-            for (let j = 1; j < s2.length + 1; j++) {
-                current[j] = Math.min(
-                    previous[j] + 1,
-                    current[j - 1] + 1,
-                    previous[j - 1] + (s1[i - 1] === s2[j - 1] ? 0 : 2));
+            // Then for each element in the row, minimize it's cost based on the cost of editing the string at that point to match the character in the second string
+            for (let j = 1; j < rowLength; j++) {
+                // Check if the characters match, which makes a 'substitution' or 'transposition' free (since they match, and so aren't really an edit)
+                const eq = s1.charCodeAt(i - 1) === s2.charCodeAt(j - 1);
+                // First, assume delete is cheapest
+                let min = previous[j] + DELETE_COST;
+                // Then calculate an insertion's cost
+                let potentialDist = current[j - 1] + INSERT_COST;
+                // And see if it's cheaper
+                if (potentialDist < min) min = potentialDist;
+                // Then check against the cost of a substitution
+                if ((potentialDist = previous[j - 1] + (eq ? 0 : CHANGE_COST)) < min) min = potentialDist;
+                // And finally check if a transposition is cheapest if one is present
+                if ((potentialDist = (i > 1 && j > 1 && s1.charCodeAt(i - 1) === s2.charCodeAt(j - 2) && s1.charCodeAt(i - 2) === s2.charCodeAt(j - 1)) ? (prevprev[j - 2] + (eq ? 0 : TRANSPOSE_COST)) : Infinity) < min) min = potentialDist;
+                // Then actually set the element to the minimal cost for that edit
+                current[j] = min;
             }
+
             // shift current back to previous, and then reuse previous' array
-            const tmp = previous;
-            previous = current;
-            current = tmp;
+            [prevprev, previous, current] = [previous, current, prevprev];
         }
-        return previous[previous.length - 1];
+
+        return previous[rowLength - 1];
     }
 }
diff --git a/tests/baselines/reference/suggestionRankingPreferences.errors.txt b/tests/baselines/reference/suggestionRankingPreferences.errors.txt
new file mode 100644
index 0000000000000..0102d0e8c8656
--- /dev/null
+++ b/tests/baselines/reference/suggestionRankingPreferences.errors.txt
@@ -0,0 +1,9 @@
+tests/cases/compiler/suggestionRankingPreferences.ts(3,13): error TS2552: Cannot find name 'tewnty'. Did you mean 'twenty'?
+
+
+==== tests/cases/compiler/suggestionRankingPreferences.ts (1 errors) ====
+    var twnty;
+    var twenty;
+    var which = tewnty;
+                ~~~~~~
+!!! error TS2552: Cannot find name 'tewnty'. Did you mean 'twenty'?
\ No newline at end of file
diff --git a/tests/baselines/reference/suggestionRankingPreferences.js b/tests/baselines/reference/suggestionRankingPreferences.js
new file mode 100644
index 0000000000000..f5e5f80c92807
--- /dev/null
+++ b/tests/baselines/reference/suggestionRankingPreferences.js
@@ -0,0 +1,9 @@
+//// [suggestionRankingPreferences.ts]
+var twnty;
+var twenty;
+var which = tewnty;
+
+//// [suggestionRankingPreferences.js]
+var twnty;
+var twenty;
+var which = tewnty;
diff --git a/tests/cases/compiler/suggestionRankingPreferences.ts b/tests/cases/compiler/suggestionRankingPreferences.ts
new file mode 100644
index 0000000000000..cc31399bff22f
--- /dev/null
+++ b/tests/cases/compiler/suggestionRankingPreferences.ts
@@ -0,0 +1,3 @@
+var twnty;
+var twenty;
+var which = tewnty;
\ No newline at end of file