The thing that is damaging about these memories is what we come to believe about ourselves. If you define yourself by experiences of rejection, and see yourself as less than desirable, you will be less likely to engage socially. The experience of withdrawing and isolating from others leads to feeling like you are on the outside and somehow different, which further reinforces the negative beliefs perpetuating the feelings of shyness.
So how does one actually overcome shyness? One place to begin is to examine what you have come to believe about yourself. Perhaps you need to rewrite that internal script to sound a little more positive and truthful. Loving and accepting yourself is part of the healing process. When you are feeling more confident about yourself, initiating relationships with others will not be as difficult. Its easier to play it safe and wait for others to reach out to you, but the rewards for reaching out to others is well worth the effort.