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This seems at first to be a contradiction and a puzzling one at that, How  or why does knowing how bad you are help you to be good? But Chesterton, although he likes paradoxes, does not make silly mistakes. He was one of those (there are too few) who had profound and realistic insight into the human condition.

We are frail creatures, home to some degree of all of the seven deadly sins and our understanding of ourselves—and of others—is therefore limited and distorted. We give ourselves better marks than we deserve, give others lower marks than they deserve, and in so doing we misjudge our capabilities and their needs. Even with the best of intentions, therefore, our limited insight into our own heart limits whatever help we might give to others. For that we need the Golden Rule.

Chesterton, perhaps, is more severe than he needs to be, but essentially he speaks the truth. We all must look deep into our own cloudy hearts if we are to be truly good-hearted people.