And to bring light to this concept, know that when a Nefesh of an Adam (person) after he comes as a new [Nefesh] the first time [in this world], if he sins and he damages it [his Nefesh], afterward, he is required to reincarnate into another body to rectify it. This second body is called his first gilgul. If he does not fix his Nefesh, he must return into a second gilgul. If he still doesn't fix his Nefesh, he must return in a third gilgul.
After this, he is no longer a possibility for him to reincarnate, and thus it is said of him, that this Nefesh is cut off ('karet') from the nation, completely. However, this [karet] is only when he did absolutely no rectification at all, in any of the three lifetimes. However, if at any time of these three [lifetimes] the Nefesh was rectified even a little bit [e.g., even if he did ONE mitzvah in any one of the lifetimes, his Nefesh] is NOT cut off.
But rather, it is able to return and do rectification even until a thousand generations if it needs. Therefore, [the person who is] a first [life] that does not rectify at all is called a rasha, and after when he rectifies even a small bit [of mitzvas], he is called Tzaddik, and thus he can continue reincarnating and completing his rectification.