The original idea of the words "holy" and "holiness" refers to something or someone who is dedicated to God for His purpose. Over time, the words have come to mean, erroneously, "godly" or "sinless."
Thus we hear the derisive expression, "holier than thou" to mean someone who is more godly than another. However, in every instance of the words "holy" and "holiness" in the NT or LXX, they refer to something or someone consecrated for a godly purpose, not someone who is sinless, godly, or perfect.
For instance, a candlestick is holy when it is dedicated for use in the temple. As such the candlestick is not for common use. Also, the candlestick cannot become more or less holy. Either it is holy or not holy. It does not have a moral character.
Likewise if a person is holy, he is dedicated to God. His moral character is not addressed. He is sanctified in that he has been set apart to do what God wants.
This concept explains 1Cor 7:14 where the unbelieving spouse is sanctified (made holy) by the believing partner. The unbelieving spouse is not made godly or sinless, nor is that spouse one of the elect. Instead he/she enjoys the blessings of the believing partner.
When Moses led the people out of Egypt, there were both believers and unbelievers among them. The unbelievers enjoyed deliverance from Pharaoh and from the ravages of the Red Sea. They benefitted from the provision of manna and victiories. But those who did not believe died and did not enter the promised land. They were within the covenant of blessing, but not among the elect for salvation.
When the Bible refers to "saints" it does not refer to people who are sinless, but to those who are separated for God.
Refuse to equate "holy" with "godly."