During his early days as monk and theologian Martin Luther would have been judged as a man blameless and righteous before God. Except in his own eyes. When he compared his life to the perfect life of Christ, he found he was sorely lacking. The Gospel (good news) of Christ’s life, death and resurrection was not Gospel for him but a standard against God judged his life. Thus, he even resented the Gospel, which only increased his sense of his sins.
However, Habakkuk 2:4, quoted by St. Paul in Romans 1:17, threw a monkey wrench into his finely tuned sense of God’s condemnation of his life. “But the righteous shall live by faith.” But how could he trust that he was right with God, acquitted of all sin, when he was judged against God’s own holiness?
After much study, Luther said, the Holy Spirit led him to see that it wasn’t his holy status before God that counted for anything. God gave Luther, and us, His own Holy status in Jesus Christ. Righteousness, exoneration from all sin, was not something Luther had to strive to attain. Through faith in Christ, God judges us to be holy and blameless before him.
We are therefore free to go about our daily life doing the good works which God sets before us and at the end of the day receive his forgiveness for our failures.