You didn't say if you were working on the wood or the glass but generally you would need to finish the area.Water getting into the wood of a bow is never a good thing and can lead to delamination if it gets bad enough.
Steel wool would never be my pick as it follows existing contours like the divet you try to remove.It also picks finish out of pores whereas sandpaper goes across the top and if used right,maintains a more even surface.
I use wet or dry sandpaper either with a firm,felt block or I fold the paper so it is more stiff and sand that way.I usually sand with it dry.
Bowdoc has a huge,long thread in the Trad History,Collecting forum that covers every angle of refinishing and repairing bows.it is also a good place to ask refinishing questions.