I can help you figure this out, sc38.

You'll want to check if the invoice isn't linked to a project. This might be the reason why you're unable to apply the credit note. Also, check the Credit note if it's having the same customer as the same with the invoice.

Once verified, try to link the apply the credit note again. For additional reference, check out this article: Create and apply credit notes or delayed credits in QuickBooks Online.

Keep me posted how it goes. I want to make sure this is taken care of.