Yeah, with the eraser/sandpaper suggestion, you can note what the grit is right on the side of the pencil.
No, K, if you're not stripping the bow water won't hurt, IMO. That said, I do wipe it often when sanding, and always let it dry completely before finishing. Works fine even with a totally stripped bow. Have never tried oil, per Phil's suggestion.
Now, as to water getting into cracks - if it can do that, then you've screwed up. If you detect a crack, fill it with loc-tite 420 before going further. Use the head of a pin or a hypodermic needle to deliver the tiniest drop right to the crack. Guide it along the crack, filling it, but minimize overflow/slop, and wipe the surface(very quickly!)with lacquer thinner. Then sand with the X-fine wet/dry paper and add whatever finish.
Back to your original question: most minor marks or sanding marks are not true breaches of the finish. A good original finish is thicker than you think. Fix the breaches you can find and sand/polish the rest of the finish to a surface you can either spray with a new finish, or-better yet-polish to be acceptable. Birchwood Casey is one of the spot finishes that actually blends pretty will with many other finishes on old bows. It is a very good solution to making an old bow look good again.