Not missing anything. It's a quirk of the system that you can only apply credits when the payment is initially entered, not on edit. No idea why. Likely something to do with the fact that the credits are really applying to your invoices and don't really have a true relationship with the payment I don't think. You'd either need to delete the payment and re-add it with the credits marked or unapply the payment from the invoices, go to the credit and apply the credit to one one of the invoices paid, and then adjust the payment amount and reapply.

Thank you for sharing this!! 🙂