You can decide after the die is rolled and it’s for any roll in combat (so attacks or damage). I’ve updated the site rules to clarify that you can only use it once per initiative round, though (i.e. on an attack or damage for a single action but not both).
You have it right that you have to use the whole modifier. This means that there’s a sweet spot where it’s useful but it becomes less effective for accuracy as you accrue more and more scars (though of course the opportunity to deal massive damage is always present).