Landlord Breaking Lease before move in date

[J Paige]

I know this is looking at the issue from the wrong side for most of you, but would love some input.  We signed a lease on house just under 3 weeks ago ~paid the security deposit at that time, which has been cashed.  We are due to move in in less than 2 weeks, but today rec'd a letter stating our application is denied because of credit issues.  Is this really legal for a landlord to do?  What are our options?  They have not returned our $1750  security deposit.  Our current lease is up a the end of this month.  We suspect they realized they could get more for the house than what they offered it to us for.