A vehicle directional heading system suitable for use in a vehicle includes a forward viewing camera viewing through a heatable localized region of the windshield, which includes a heating element disposed thereat. A compass system includes a compass sensor and associated compass circuitry that, responsive to an output of the compass sensor indicative of sensed magnetic fields, is operable to determine a directional heading of the vehicle. When the heatable localized region is heated by an electrically resistive material of the heating element passing an applied electric current when the heating element is electrically powered, a magnetic signature is generated. The compass sensor of the compass system senses said magnetic signature, and the compass circuitry determines a vehicle directional heading of the vehicle that is compensated for the magnetic signature.