Wind turbine gearbox bearings experience premature failures. Damage characterisation of failed bearings have shown that subsurface micro cracks and butterfly-wing cracks are associated with non-metallic inclusions in the bearing raceways. The existing studies are unable to predict crack propagation under rolling contact fatigue considering shakedown and ratchetting when the material around an inclusion experiences sufficiently high levels of stresses. In this study, a finite element (FE) damage model based on the Continuum Damage Mechanics (CDM) is developed, integrated with the plastic deformation and kinematic hardening when the material at inclusion is subjected to alternating tension and compression. Two damage types of manganese-sulphide inclusions are investigated, showing significant effects of inclusion boundary separation and internal cracking on the subsurface RCF crack evolution. The modelling results also show that higher surface traction, overloads and varied loading sequences, commonly experienced by WTs in operation, have significant effects on the increase of the subsurface butterfly-wing crack lengths, because of an early crack initiation and accelerated crack propagation. The developed CDM FE model has shown its effectiveness in predicting the damage evolution to gain new insights of complex interactions of a number of critical factors that led to the premature bearing failure.