You used it when you wrote this equation:
$$\frac{\ker \phi \oplus H}{\operatorname{im} \partial_1} = \frac{\ker \phi}{\operatorname{im} \partial_1} \oplus H$$
You're implicitly using the fact that $\operatorname{im} \partial_1 \subset \ker \phi \iff \phi \circ \partial_1 = 0$. Otherwise taking the quotient $\ker \phi / \operatorname{im} \partial_1$ doesn't even make any sense!
Also your proof isn't really satisfactory. You say that since $\phi$ is an epimorphism onto $\mathbb{Z}$ and $C_0(K)$ is abelian, then there exists some $H \cong \mathbb{Z}$ such that $C_0(K) \cong \ker \phi \oplus H$. This isn't always true. Consider the epimorphism $f : \mathbb{Z}/4\mathbb{Z} \to \mathbb{Z}/2\mathbb{Z}$ (reduction modulo $2$). Then there is no subgroup $H \subset \mathbb{Z}/4\mathbb{Z}$ isomorphic to $\mathbb{Z}/2\mathbb{Z}$ such that $\mathbb{Z}/4\mathbb{Z} \cong \ker f \oplus H$ (a nice exercise).
Here it actually is true because the image of $\phi$ is $\mathbb{Z}$, which is a projective abelian group. This implies that the short exact sequence:
$$0 \to \ker \phi \to C_0(K) \xrightarrow{\phi} \mathbb{Z} \to 0$$
splits on the right (i.e. there is some splitting $s : \mathbb{Z} \to C_0(K)$ such that $\phi \circ s = \operatorname{id}_\mathbb{Z}$), and since $C_0(K)$ is abelian it implies your claim. But you really need $\mathbb{Z}$ to be projective (free abelian implies projective) here... So it needs to appear somewhere in your proof.