You'd think your credit score would be high if you always paid everything in time, were never late and never penalized.

That is exactly how it works. That's exactly the situation I'm in, no real debt (only credit cards, which I pay off in full monthly, so no interest) and haven't been since I paid my auto loan off over a decade ago, and I'm in the low 800s, where 750+ is the highest tier in the eyes of basically all lenders.

Instead you only have good credit score if you're perpetually in debt.

Incorrect. I'm astonished at how persistent this misconception still is.