A new potential damping model for the dynamic analysis of systems is called exponential damping. This article shows that the finite element model updated method for the systems with exponential damping can accurately predict not only the natural frequencies but also the frequency response functions (FRFs) of the systems. A complex mode procedure for identifying the exponential damping model and its applicability and limitations is presented. A new iterative method for relaxation factor, which is simple, direct, and compatible with conventional modal testing procedures is proposed. The proposed method and several related issues are illustrated by numerical examples. Combined with the FRFs-based model updating method, the finite element model with such nonviscous damping is updated.