A system and method for calibrating a vehicle heading sensor, such as a yaw-rate sensor, when GPS signals are not available using a bias update model that employs a bias gain factor. In order for the bias update model to be accurate, the vehicle should be traveling relatively straight. One embodiment of the present invention uses three thresholds to determine if the vehicle is traveling straight. These thresholds include a yaw-rate threshold, a steering wheel angle threshold and a wheel speed threshold. If all three of the thresholds indicate that the vehicle is traveling straight, then the update bias model can be used to calibrate the yaw-rate sensor.