As the core and precision component of a mechanical system, rolling element bearings would cause irreparable results once it breaks down. In order to study the dynamic response of bearing system caused by different localized defect sizes on outer raceway, a two-dimensional (2-D) explicit dynamics Finite Element Method (FEM) model of shaft-bearing-pedestal system with a localized defect is proposed. The model is verified by the experimental results. A new numerical method is used to investigate the influence of different defect sizes on the contact characteristics in this model. The indicator scfdefect-health is introduced to study the contact force with different defect sizes. The results show that the scfdefect-health increases with the increasing of defect depth and width, and the mathematic relationships are given for scfdefect-health. Therefore, the dynamic FEM model can be used to bearing fault diagnosis and defect prediction.