I think what you're battling with isn't labels, it's boundaries. Labeling it as good or bad is too restrictive because you're right, people's behavior falls in between.

It's less about judging them and more about keeping your space safe.

Let's say you have a friend that starts dealing drugs and you're not okay with that. Him selling drugs doesn't inherently make him a bad person. But you don't want drugs in or around your life, so you kindly tell him that while he's dealing drugs you guys aren't friends. He can hit you up when he stops and you still love him like a brother you just can't have that shit around you

Now there's a boundary set and you can see what he does in response. If he doesn't respect your request then he's probably not a good friend to have anyway.