This paper provides further understanding of the peak load effect on micro-crack formation and residual stress relaxation. Comprehensive numerical simulations using the finite element method are applied to simultaneously take into account the effect of the surface roughness and residual stresses on the crack formation in sandblasted S690 high-strength steel surface under peak load conditions. A ductile fracture criterion is introduced for the prediction of damage initiation and evolution. This study specifically investigates the influences of compressive peak load, effective parameters on fracture locus, surface roughness, and residual stress on damage mechanism and formed crack size. The results indicate that under peak load conditions, surface roughness has a far more important influence on micro-crack formation than residual stress. Moreover, it is shown that the effect of peak load range on damage formation and crack size is significantly higher than the influence of residual stress. It is found that the crack size develops exponentially with increasing peak load magnitudes.