How do you decide who is worthy of your friendship?

I have always had the thought of how much good there is in people. Are people born good or born bad? I seemed to have many disappointments in friends, and can’t decide if my expectations of a person is too high (I know nobody’s perfect, but), or if I am doing the right thing following my gut.

For instance: a friend continually disappoints you, do you distance yourself from them or continue to forgive? Where is that line?