The refactoring step in TDD is essential for improving the quality and design of your code, without altering its functionality. Refactoring involves making small and frequent changes to your code, such as renaming variables, extracting methods, and simplifying expressions. By refactoring your code, you can eliminate code smells and bad practices, enhance readability and understandability, increase modularity and reusability, and optimize performance and efficiency. To refactor your code effectively, you should use a refactoring tool or feature that supports TDD, such as IntelliJ IDEA or Visual Studio Code. Additionally, you should refactor your code only when it passes all the tests and run the tests again after each change to ensure that the functionality is preserved. Furthermore, you should refactor your code incrementally and iteratively by applying one change at a time and committing or merging your code frequently. Lastly, it's important to refactor your code collaboratively and transparently by using code reviews, pair programming, or mob programming techniques.