Short answer
Islam tells you to choose friends carefully, because a person follows the religion of his close friend. Good friends are like a perfume seller and bad ones like a blacksmith's bellows. Friendship for the sake of Allah earns His shade on the Day of Judgement. Being kind to everyone is required, but your closest friends should help you stay close to Allah.
Keeping company with righteous people is mustahabb (recommended), and close friendship with people who draw you into sin is to be avoided. Being just and kind to all people, Muslim or not, is required.
The four schools agree on this.
Explanation
The Prophet ﷺ said that a man is upon the religion of his close friend, so let each of you look at whom he befriends. Over time you pick up your friends' habits, language, priorities and even beliefs. That is why choosing friends is a religious decision, not only a social one.
He gave a picture that is easy to remember. A good companion is like a seller of musk: he may give you some, you may buy from him, or at least you enjoy the smell. A bad companion is like a blacksmith's bellows: he may burn your clothes, or at least you leave with a bad smell. The Quran describes a person on the Day of Judgement crying, 'I wish I had not taken that one as a friend,' and says that close friends will be enemies that Day, except the righteous.
Signs of a good friend:
- reminds you of prayer and of Allah, and is happy when you do well;
- tells you the truth kindly and keeps your secrets;
- stops backbiting in front of you and defends you when you are absent;
- does not pull you towards haram for the sake of fitting in.
Friendship for Allah's sake has a great reward. Among the seven people Allah shades on the Day when there is no shade but His are two who love each other for His sake, meeting and parting on that. Tell your friend you love him for Allah's sake, give gifts, visit him when ill and make dua for him in his absence.
This does not mean cutting off people who are struggling. Good manners and kindness are owed to everyone. For questions about friends of the opposite sex and non-Muslim friends, see girlfriends and boyfriends and friends with non-Muslims. The four schools agree on these teachings.
The evidence
Quran, Surah Az-Zukhruf 43:67
ٱلْأَخِلَّآءُ يَوْمَئِذٍۭ بَعْضُهُمْ لِبَعْضٍ عَدُوٌّ إِلَّا ٱلْمُتَّقِينَ ﴿٦٧﴾
Close friends, that Day, will be enemies to each other, except for the righteous
Only friendships built on righteousness last into the Hereafter.
Quran, Surah Al-Furqaan 25:28
يَٰوَيْلَتَىٰ لَيْتَنِى لَمْ أَتَّخِذْ فُلَانًا خَلِيلًۭا ﴿٢٨﴾
Oh, woe to me! I wish I had not taken that one as a friend.
A bad friend can lead to regret on the Day of Judgement.
Sunan Abi Dawud 4833
Grading to be checked... الرجل على دين خليله فلينظر أحدكم من يخالل ...
"A man is upon the religion of his close friend, so let each of you look at whom he befriends."
Friends shape your religion.
Sahih al-Bukhari 5534
Sahih... مثل الجليس الصالح والسوء كحامل المسك ونافخ الكير ...
"The good companion and the bad one are like the carrier of musk and the one who blows the blacksmith's bellows."
Good company benefits you and bad company harms you.
Sahih al-Bukhari 660
Sahih... ورجلان تحابا في الله اجتمعا عليه وتفرقا عليه ...
"Two men who love each other for Allah's sake, meeting for that and parting for that."
Friendship for Allah earns His shade on the Day of Judgement.
Where the ruling is recorded
- Ihya Ulum al-Din (al-Ghazali), Kitab Adab al-Ulfa wa al-Ukhuwwa (the book on friendship and brotherhood). Sets out the qualities to look for in a friend and the rights of friendship.
- Riyad al-Salihin (al-Nawawi), Chapter on visiting the righteous and loving for the sake of Allah. Gathers the hadith on choosing righteous company.
This answer is pending review by the scholars on our team. Quran translation by Sahih International. Hadith Arabic from the standard editions of the six books and the Muwatta, with gradings as recorded there; the English is our own rendering. Spotted a mistake? Tell us.