Esshup always gives good advice. Red clay will work just fine. if it is used on the dam above water line, it will be mixed with some topsoil to keep it from cracking upon drying. It needs to be just the right amount of moisture for it to pack well. A good, reputable, experienced dirt guy will know.
Read all you can before talking to them, so you can be better informed and know what to ask, and how to respond to their verbage.