Steel structures such as transmission towers may have cracks and other damages during the service period. When the structure vibrates, the cracks will open and close, which makes the structure have nonlinear characteristics of variant stiffness. In order to identify this type of nonlinear damage, a time-domain damage identification method based on the residual deviation distance (RDD) of the autoregressive conditional heteroskedasticity (ARCH) model is proposed. First, the basic theory of the ARCH model is introduced, and the methods of model order determination and parameter estimation are given. Then, the time-domain nonlinear damage characteristics are analyzed, and the second-order variance (SOV) index based on the ARCH model is introduced. Considering that both the ARCH model coefficient and the RDD contain nonlinear information, a conversion index is constructed using the Euclidean distance (ED) of the ARCH model coefficients before and after the damage. On this basis, an RDD conversion index is further proposed to improve the identification accuracy. Finally, a three-storey frame experiment and a complex transmission tower model experiment are used to verify the effectiveness of the proposed method. The experimental results show that the proposed RDD conversion index can better identify the location of structural damage, and the identification results of the RDD conversion index are obviously better than those of the SOV conversion index and the ED conversion index.