The belief that God's saving and sanctifying grace is imputed to man, rather than infused in man. That is, God's grace "covers" the sin and impurity of man, making him "appear" righteous in God's judgement, which in turn allows man to enter heaven. According to this belief, man cannot undergo an interior change that is sufficient to be saved; he must be covered by the grace of God in order to be counted as righteous.
Catechism of the Catholic Church
1999 The grace of Christ is the gratuitous gift that God makes to us of his own life, infused by the Holy Spirit into our soul to heal it of sin and to sanctify it. It is the sanctifying or deifying grace received in Baptism. It is in us the source of the work of sanctification:
Therefore if any one is in Christ, he is a new creation; the old has passed away, behold, the new has come. All this is from God, who through Christ reconciled us to himself.
Some argue that Paul's use of the word "reckoned" here suggests that righteousness was merely imputed to Abraham since it did not say that he was "made" righteous, or similarly. In other words, they argue that Abraham was internally still unrighteous, but externally counted as righteous.
Jesus
Scripture: Matt 5:25-26, 1 Cor 3:10-15
The Acts of Paul and Thecla
Tradition: The Acts of Paul and Thecla, Abercius, The Martyrdom of Perpetua and Felicity, Tertullian, Cyril of Jerusalem, Gregory of Nyssa, John Chrysostom, Augustine